Last year, my daughter lived in the dorms. This year, she has an apartment with some friends. Can I use funds from the 529 account to pay for off-campus housing expenses?
In general, you can use 529 funds to pay for your student’s off-campus housing costs. However, housing is one of many expenses that are subject to a reimbursement limit.
Essentially, the school sets a budget or allowance for room and board, referred to as the cost of attendance. All off-campus housing expenses that fall within the budget qualify for 529 reimbursement.
This budget costs can include rent, utilities, and food.
The precise value of the room and board allowance is specific to each school and each school year. You should be able to find this number on the school’s website or by calling their financial aid office. For example, here is the University of Virginia’s estimated cost of attendance page for 2018-2019.
Your room and board 529 reimbursement is limited to the greater of the school’s room and board allowance or the actual amount the student would pay for on-campus housing.
Another stipulation is that the student must be enrolled at least half-time for off-campus housing costs to be considered a qualified distribution.
It is also important to note that, even though you can use 529 funds to reimburse for off-campus housing costs, the funds cannot be sent directly to the landlord or property manager. This is the same as for groceries: You can use 529 funds to reimburse you for grocery costs when not on the meal plan, but you cannot send a 529 distribution to the grocery store.
Qualified distributions from 529 accounts can only be made in one of three ways:
- Directly to the owner of the account
- Directly to the beneficiary of the account
- Directly to the school
The funds should be sent to whoever is actually paying the expenses.
Virginia529 determines where to send the 1099-Q tax form based on where the 529 funds were sent. If the owner received the funds, the owner will also receive the 1099-Q. If the beneficiary or the school received the 529 funds, the beneficiary will receive the 1099-Q. For distributions occurring this year, the 1099-Q form will be sent by January 31st of next year. If all your distributions are reimbursements for qualified education expenses that year, then distributions reported on the 1099-Q shouldn’t need to be reported to the IRS. However, if your distributions exceed the qualified education expenses for that year, then some of the distributions will likely be taxable.
Although you shouldn’t need to do anything with the 1099-Q, it is important to keep it and all associated receipts with your tax records. Keeping receipts from all the qualified expenses you used the 529 funds for will help you verify that you didn’t take more out from the 529 account than what you paid in qualified expenses if you are audited by the IRS. They will often send a paper audit the first time a taxpayer takes a withdrawal from a 529 account.
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