529 Plan Reimbursements for Off-Campus Living

Michael K. Creamer, CPA, CFP®, CDFA, ADPA Investing, Coronavirus, Personal Finance, Tax Planning For Individuals Leave a Comment

529 Plan reimbursement

With college campuses opting for online classes during the COVID-19 outbreak, many students have been taking classes from home, and all indications are this will continue at least through the fall of 2020. As a result, colleges and universities are refunding a portion of the students’ room and board costs. For many parents, this new reality raises a few questions regarding the use of 529 plans for reimbursing the room and board expenses for housing a student at home.

Live in Maryland? See relevant article: Maryland 529 plan: Benefits of Contributing to an MD 529 Plan

Can I Be Reimbursed By 529 For Off-Campus Living?

The short answer is: Yes, room and board expenses for off-campus housing – including a parent’s home – may be reimbursed through a 529 plan, but not necessarily the full cost. The reimbursable amount depends largely on the maximum amount the college permits for off-campus living costs based on its published cost of attendance (COA) used for financial aid purposes.

The off-campus room and board reimbursement, which can include utilities and other reasonable living costs, are available to students enrolled on at least a half-time basis and on an 8-year graduation track. It doesn’t include non-academic fees such as student activity, parking, and transportation. Commuting students then cannot deduct mileage, gas, or any other transportation costs, but many students are not commuting to their new virtual classrooms.

How Do I Determine the Reimbursable Amount?

Generally, you cannot claim more than what a college allows for room and board expenses based on its stated COA for a particular academic period. However, the COA for off-campus room and board is different from the COA for living on campus. Typically, the off-campus COA is smaller than the on-campus COA. For example, a college might charge $10,000 for a meal plan and dorm room. But it can set the off-campus COA at $8,000 to include rent, utilities, meals, and other reasonable living expenses. So, for this example, any off-campus expenses that exceed $8,000 are not eligible for reimbursement.

You can find out both the on-campus and off-campus COA by contacting the college’s financial aid office, or Google the COA page for the college.

What if Off-Campus Expenses are Less than the COA – Can I Still Claim the COA Amount?

The IRS only states two limitations on the amount of room and board you can reimburse:

1. You cannot reimburse more than the allowance for room and board regardless of your expenses.
2. You can reimburse exactly the COA allowance regardless of your expenses.

In other words, you can be reimbursed for room and board expenses you actually spent, but you can’t be reimbursed for more than the room and board allowance regardless of your expenses. That leaves open the question of whether you can still be reimbursed for the full COA allowance if your actual expenses were less.

Based on available guidance, the answer is not clear. Referring to IRC Section 529, we know that, because “The actual amount charged if the student is residing in housing owned and operated by the school,” on-campus students can be reimbursed for room and board without regard to the COA allowance.

We also know that, for off-campus students, the expense for room and board qualifies to the extent it isn’t more than the allowance for room and board in the COA for a particular academic period.

The IRS seems to provide clarification through another clause in IRC Section 529 that states:

The amount treated as qualified higher education expenses by reason of clause (i) shall not exceed—
 
i. the allowance (applicable to the student) for room and board included in the cost of attendance (as defined in section 472 of the Higher Education Act of 1965 (20 USC 1087ll), as in effect on the date of the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001) as determined by the eligible educational institution for such period, or

ii. if greater, the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged by such institution for room and board costs for such period.

The difference here is the use of “qualified higher education expenses” as a determining factor. This seems to imply that your actual expenses, not the COA, should be used to determine qualified expenses within the COA parameters.

This is further supported by the requirement that off-campus students need to collect evidence of every qualified expense, including bank and credit card statements, and receipts, as proof of qualified expenses. On-campus students are not required to collect such evidence because they are provided with clear-cut bills for student housing and meal plans. They don’t even need to be concerned with the COA allowance, because the room and board amount a college charges is considered a qualified expense. 

While the 529 plan reimbursements for off-campus living could use further clarification, it is safe to assume for now that the IRS wants you to be reimbursed for the amount of your actual expenses.

Still confused? Contact a wealth management advisor to discuss your options. 



About The Author
Michael K. Creamer, CPA, CFP®, CDFA, ADPA

Michael K. Creamer, CPA, CFP®, CDFA, ADPA

Principal, Tax & Planning Services, Director of Wealth Advisory Services Learn More>>

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