My D is planning to live off campus and it is somewhat unclear how much can qualify for payment with 529 plan. Apparently it can be up to the amount the school declares for room/board for their COA. According to the school web site, room/board for on-campus is stated to be 15,991 (although I know there are cheaper options, this is definitely on the high side), and room/board estimate for off-campus is 13,806. So is my upper limit for 529 plan withdrawal 13,806 or 15,991, although I know I need to document withdrawals less than that?
If school lists COA for off-campus as 13,806 and your daughter is going to live off-campus, then you need to use 13,806 from your 529 plan for R&B costs.
Pats mom is mistaken. You need to have receipts in case you are audited, but you are not bound by the estimates that the school provides.
^^ Or actual costs. You can keep track of rent, utilities, food and use that number.
Reading IRS pub 970 word by word, I decided patsmom is right, I am bound by the estimates for the upper limit of what the 529 plan can be used for. Eg if she spends 20k living it up off campus only 13806 could be reimbursed out of 529 plan.
Yes, she should use the allowance listed in the cost of attendance. If she pays separately for internet access, she can include that as an additional expense along with computer hardware and appropriate software, per paragraph 4, on page 51. Note that she will not pay tax on the entire amount above the allowance, just the portion that represents earnings (prorated, per their calculation). If she has non-taxable scholarship, she can avoid the 10% penalty for early distributions (and only pay tax), to the extent of those scholarship. When considering the amount to use toward tuition, keep the American Opportunity Credit in mind too. This is particularly important now that “kiddie tax” is based on the Trust & Estate tax tables, rather on parental income.
@brooklynlydia and @twoinanddone, I’m not mistaken. Read IRS Publication 970, Chapter 8, Page 51 –
Hmmm. Shows how long it’s been since I read the pub. Thanks.
Me too, but I did know someone who tracked all costs because he thought that would be more than the COA.
Are you thinking it is going to be more than the amount allowed by the school? If so and you can show the school that, they can adjust the COA on a student by student basis. For example, if your student needed to rent an apartment near the school because of a need to walk to school, and needed a single apartment, the school could see the need to pay twice as much for that apartment, and adjust the COA.
I was just trying to figure out the general rule for how much could potentially be paid out of 529 plan for off-campus living. Hopefully she will spend less than the off-campus COA. I want her to be thrifty, but to document all her room/board expenses including eating out for dinner so that the documented room/board costs are as high as possible up to 13,806. My state allows deduction for 529 investments, very flexible. As long as you do it in the same year, you could spend on qualified expenses, invest separate money in 529 park it in cash for a week, pay yourself back for the expenses, deduct the expense off your state income. Free 5% return as long as you have the spare cash to park in the 529.
Documentation as you describe is not expected by the IRS, and is not required. It’s also a burden that I personally would not impose on my child. If you limit the 529 distributions to COA as published by the school, plus required textbooks and class supplies, as well as computer and associated technology equipment and internet service all of which is used predominantly for educational purposes, you shouldn’t have any issues.