Dear Liz: We are tapping our child’s 529 college savings plan for the first time and are confused on what qualifies as a “qualified higher education expense.” Obviously tuition counts, but what about other fees, such as student body fees, health insurance coverage and tuition insurance? We’re also trying to figure out how much we can withdraw to cover an off-campus apartment next year. The college website lists three different food plans (with different costs) as well as different room costs depending on whether the student is in a dorm or a college-run apartment on campus.
Answer: A fee must be required to be considered a qualified education expense for a tax-free 529 plan withdrawal, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. The qualified fee can be required either to attend the institution or required of all students in a particular for-credit course of instruction, Luscombe said. The school’s business office can tell you what’s required and what’s optional.
This school year, while your student lives on campus, you can withdraw an amount equal to the actual cost incurred for room and board. You can’t take tax-free withdrawals for other costs, such as dorm furnishings, groceries or restaurant meals. Next year, you can use the school’s official “cost of attendance” figures listed on its website, which will set an upper limit on what qualifies as room and board expenses. The college may list different figures for dorm rooms, on-campus apartments, married or graduate student apartments or living at home.
“If more than one figure for room and board is listed in the COA, you could use the highest figure that would apply to the particular student’s situation,” Luscombe said.
Books, supplies and computers used for school are also considered qualified education expenses. Transportation and commuting costs are not.
The above column is confusing. Luscombe is quoted as “This school year, while your student lives on campus,….” and then later says, “Next year, you can use the school’s…” Is there a difference between 2023 and 2024? It certainly doesn’t show up in IRS Publication 970. Also, most websites on the internet show that groceries is allowed.
While a student lives on campus, the qualified expense is limited to what the family spends purchasing a campus meal plan. When a student lives off campus,the qualified expense is still limited to the cost of a meal plan, but the actual money can be spent on groceries. Hope that helps.