Paying for Off-Campus Housing with a 529 Plan
Your student's room and board could be covered tax-free for an entire 12-month lease, even if he or she only takes classes for nine months of the year.
- (opens in new tab)
- (opens in new tab)
- (opens in new tab)
- Newsletter sign up Newsletter

Question:
My son will be a sophomore in college in the fall and is living off-campus. He has a 12-month lease, but he doesn’t attend classes in the summer. Can I use his 529 money tax-free for the full year’s rent, or do I need to prorate the withdrawal based on the number of months he’s in school?
Answer:

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
That’s a good question. You are correct that he doesn’t have to live on-campus to withdraw money tax-free from the 529 for rent. As long as he’s a student at least half-time, you can withdraw the cost of rent for the off-campus apartment up to the room-and-board allowance that the college included in the cost of attendance for federal financial aid purposes. (The figure is usually listed on the college’s website, or you can ask the financial aid office.) However, the tax law does not specify whether you can withdraw the money for the full year’s rent if he only attends classes nine months out of the year.
“The most conservative interpretation is that, even though the lease on the apartment might be for a full year, only the housing expenses incurred while the student is enrolled would definitely be considered qualified,” says Brian Boswell, of Savingforcollege.com (opens in new tab). But, Boswell says, there is no specific guidance from the IRS on full-year off-campus housing payments.
“The more aggressive approach is if the student incurred a full year of rent, it could be considered qualified as long as he was enrolled at least half-time and expenses were at or below the room allowance as determined by the institution at the time,” Boswell says. But be careful, he says, because there’s no guarantee that the rent for the months he doesn’t take classes would be considered qualified when scrutinized by the IRS. “If the price of off-campus housing for the full 12 months is less than the estimated amount provided by the school for a school year, it’s unlikely the IRS would have any issue with it being considered a qualified expense,” says Boswell. If he does register for summer classes, however, the ambiguity is removed and the full year’s expenses will definitely count, up to the college’s allowance for room and board. Either way, keep canceled checks or other records of the rent paid in your tax files.
For more information, see IRS Publication 970, Tax Benefits for Education.
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
-
-
Controversial Capital Gains Tax Upheld in Washington
The state’s historic long term capital gains tax is projected to bring in $1 billion over the next two years.
By Kelley R. Taylor • Published
-
Protect Your Retirement: Seven Things You Can Do Right Now
Whether you’re preparing to retire or already retired, a proactive plan is critical to help safeguard your retirement, especially amid uncertainty.
By Jessica Cervinka, IAR • Published
-
College 529 Savings Plans: What You Need to Know
529 Plans Do you know how much you’re able to contribute or what the funds could be used to pay for? Check out the nitty-gritty details of this formidable college savings tool.
By Michael Aloi, CFP® • Published
-
3 Key Ways You Can Help a Child or Grandchild Pay for College
college Options such as 529 plans, education savings accounts and tax-free gifts can ensure you don’t carry a child’s student loan debt into your golden years.
By Tony Drake, CFP®, Investment Advisor Representative • Published
-
Grandparents: Now is the Time to Contribute to Your Grandkid's 529 Plans
529 Plans With new changes to the FAFSA process, you can “superfund” their college savings – without affecting their financial aid status.
By Shane W. Cummings, CFP®, AIF® • Published
-
Saving for College? Everything You Need to Know About 529 Plans
529 Plans 529 plans offer considerable convenience and potential tax savings when putting money aside for education. That said, there are still a range of rules you’ll need to know (and follow).
By Elaine Silvestrini • Published
-
School’s Out for Summer … But Tuition Is Back in the Fall
Paying for College Giving the gift of education never goes out of style. Here are some different options for helping out the young person in your life.
By Kathleen Kenealy, CFP®, CPWA® • Last updated
-
States Boost 529 Plan Incentives
529 Plans Many states provide a tax break for residents, and now they're offering matching contributions and other perks.
By Sandra Block • Published
-
When Choosing Funds for Your College 529 Plan, Don’t Make This Mistake
529 Plans Age-based funds make sense for some retirement savers, but they rarely make sense for college savers, in my opinion. Here’s why.
By Michael Aloi, CFP® • Last updated
-
The Coronavirus-Caused 529 Plan Tax Risk You Can't Ignore
529 Plans With the coronavirus canceling college classes, you could be due a refund. But if you used 529 plan withdrawals to pay for tuition or room and board, you could be hit with a tax bill if you don't take this action within 60 days.
By Chris Gullotti, CFP® • Last updated