Can 529 Funds Be Used for Off-Campus Housing?

529 plans are tax-advantaged investment accounts designed to help families save for future education expenses. While the primary purpose of 529 plans is to cover college tuition and fees, there are some circumstances where funds can be used for off-campus housing.

Using 529 Funds for Off-Campus Housing

The Tax Cuts and Jobs Act of 2017 expanded the definition of qualified education expenses to include room and board, including off-campus housing, at eligible educational institutions. However, there are some specific requirements that must be met in order to use 529 funds for off-campus housing:

• The student must be enrolled at least half-time in a qualified educational institution, such as a college, university, or vocational school.
• The off-campus housing must be considered a "qualified expense" by the educational institution. This typically means that the housing must be located near the institution and is necessary for the student to attend classes.
• The amount of 529 funds used for off-campus housing cannot exceed the "room and board allowance" set by the educational institution. This allowance is usually based on the average cost of on-campus housing.

Benefits of Using 529 Funds for Off-Campus Housing

There are several benefits to using 529 funds for off-campus housing:

• Tax-free growth: Earnings on 529 funds are tax-free, which can help reduce the overall cost of housing.
• Flexibility: 529 funds can be used for a variety of qualified expenses, including off-campus housing, tuition, fees, and books.
• Early withdrawal penalty: There is no early withdrawal penalty for using 529 funds for qualified education expenses, including off-campus housing.

Drawbacks of Using 529 Funds for Off-Campus Housing

There are also some drawbacks to using 529 funds for off-campus housing:

• Limited availability: Not all educational institutions allow students to use 529 funds for off-campus housing.
• Room and board allowance: The amount of 529 funds that can be used for off-campus housing is limited by the room and board allowance set by the educational institution.
• Early withdrawal penalty: If 529 funds are used for non-qualified expenses, including off-campus housing that does not meet the requirements outlined above, the earnings will be subject to a 10% early withdrawal penalty.

Other Options for Paying for Off-Campus Housing

If you are not able to use 529 funds for off-campus housing, there are several other options available:

• Financial aid: Students may be eligible for financial aid to help cover the cost of off-campus housing.
• Student loans: Student loans are another option for paying for off-campus housing. However, student loans come with monthly payments and must be repaid after graduation.
• Part-time job: Students can also earn money to help pay for off-campus housing by working part-time.

Conclusion

Using 529 funds for off-campus housing can be a great way to reduce the cost of college. However, it is important to be aware of the requirements and limitations associated with using 529 funds for this purpose. If you are not able to use 529 funds for off-campus housing, there are several other options available.

Common Mistakes to Avoid

Here are some common mistakes to avoid when using 529 funds for off-campus housing:

• Exceeding the room and board allowance: The amount of 529 funds that can be used for off-campus housing is limited by the room and board allowance set by the educational institution. If you exceed this allowance, the earnings will be subject to a 10% early withdrawal penalty.
• Withdrawing funds for non-qualified expenses: 529 funds can only be used for qualified education expenses, including off-campus housing that meets the requirements outlined above. If you withdraw funds for non-qualified expenses, the earnings will be subject to a 10% early withdrawal penalty.
• Not reporting withdrawals on your taxes: When you withdraw funds from a 529 plan, you must report the withdrawal on your taxes. If you fail to do so, you may owe taxes and penalties.

Tips and Tricks

Here are some tips and tricks for using 529 funds for off-campus housing:

• Check with your educational institution: The first step is to check with your educational institution to see if they allow students to use 529 funds for off-campus housing.
• Review the room and board allowance: Once you have confirmed that your educational institution allows students to use 529 funds for off-campus housing, you need to review the room and board allowance. This will help you determine how much 529 funds can be used for this purpose.
• Consider your other options: If you are not able to use 529 funds for off-campus housing, there are several other options available to you. Consider exploring financial aid, student loans, and part-time work to help cover the costs of off-campus housing.

Tables

Table 1: Average Cost of Off-Campus Housing

Table 2: Room and Board Allowances at Selected Universities

Table 3: Benefits of Using 529 Funds for Off-Campus Housing

Table 4: Drawbacks of Using 529 Funds for Off-Campus Housing