529 accounts, kids home due to covid, Room and Board

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is50xenough
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529 accounts, kids home due to covid, Room and Board

Post by is50xenough » Sat Aug 01, 2020 3:17 pm

Now that anyone with a college student has had them home for a term, I am hoping there are more people who have thought about taking funds from their 529 to cover Room and Board expenses for the student at home.

I have read the other Bogleheads posts I can find, and have come up with this calculation for a kid who is part of a family of 3. Did not charge rent, to not get into thoughts of now paying taxes on rent and did not do a share of mortgage since use of 529 for mortgage specifically not allowed.

1/36 property tax per month (since paid annually divide by 12 for monthly then by 3 for the student's share)
1/36 home insurance per month
⅓ electric per month
⅓ internet, etc per month
⅓ water/trash per month
⅓ home alarm per month
⅓ food per month (I got $380)

our total is just shy of $3000 for the 3 months or so of this term.

I will point out that the school charges about $5400 per term and doesn't distinguish on campus, off campus or living at home and yes I checked web page for school and contacted them.

Would folks include other expenses or comment on my thoughts????

Is there any justification for "rent" charge???

Thanks all for contributing to this topic

RetiredCSProf
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Re: 529 accounts, kids home due to covid, Room and Board

Post by RetiredCSProf » Sat Aug 01, 2020 6:27 pm

I am in this situation, but have chosen not to charge my son R&B out of his 529 fund.

My son's school (public state university that is largely a commuter school) shows $8704 for R&B in the Cost of Attendance (COA) for commuter students and $13,156 for R&B for off-campus housing for the full academic year (two semesters). This is in Southern California.

I suggest looking to see if a local public university in your geographical area publishes numbers.

Topic Author
is50xenough
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Re: 529 accounts, kids home due to covid, Room and Board

Post by is50xenough » Sun Aug 02, 2020 6:52 am

RetiredCSProf wrote:
Sat Aug 01, 2020 6:27 pm
I am in this situation, but have chosen not to charge my son R&B out of his 529 fund.

My son's school (public state university that is largely a commuter school) shows $8704 for R&B in the Cost of Attendance (COA) for commuter students and $13,156 for R&B for off-campus housing for the full academic year (two semesters). This is in Southern California.

I suggest looking to see if a local public university in your geographical area publishes numbers.
Thx. That is interesting idea. Will give be local ballpark. Hoping for input of what others who do hit 529 put in calculation.

Triple digit golfer
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Re: 529 accounts, kids home due to covid, Room and Board

Post by Triple digit golfer » Sun Aug 02, 2020 7:34 am

You are wanting to take money from your kid's 529 to pay yourself? Is that even allowed? You are not an education expense, as far as I know. I'd be interested in hearing if any other parents whose kid lived at home for all of college was able to do this.

Why not just take out whatever is left when college is over and pay the usual taxes/penalties of unused 529 money?

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FiveK
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Re: 529 accounts, kids home due to covid, Room and Board

Post by FiveK » Sun Aug 02, 2020 8:16 am

Triple digit golfer wrote:
Sun Aug 02, 2020 7:34 am
You are wanting to take money from your kid's 529 to pay yourself? Is that even allowed? You are not an education expense, as far as I know. I'd be interested in hearing if any other parents whose kid lived at home for all of college was able to do this.
It's allowed.

See Publication 970 (2019), Tax Benefits for Education | Internal Revenue Service (emphasis added):
The expense for room and board qualifies only to the extent that it isn't more than the greater of the following two amounts.

The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.

The actual amount charged if the student is residing in housing owned or operated by the school.

You may need to contact the eligible educational institution for qualified room and board costs.
Food is food, whether provided by Enormous State University or local grocery stores.

Triple digit golfer
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Re: 529 accounts, kids home due to covid, Room and Board

Post by Triple digit golfer » Sun Aug 02, 2020 8:25 am

FiveK wrote:
Sun Aug 02, 2020 8:16 am
Triple digit golfer wrote:
Sun Aug 02, 2020 7:34 am
You are wanting to take money from your kid's 529 to pay yourself? Is that even allowed? You are not an education expense, as far as I know. I'd be interested in hearing if any other parents whose kid lived at home for all of college was able to do this.
It's allowed.

See Publication 970 (2019), Tax Benefits for Education | Internal Revenue Service (emphasis added):
The expense for room and board qualifies only to the extent that it isn't more than the greater of the following two amounts.

The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.

The actual amount charged if the student is residing in housing owned or operated by the school.

You may need to contact the eligible educational institution for qualified room and board costs.
Food is food, whether provided by Enormous State University or local grocery stores.
Wow. Learn something new every day! It makes sense but I just never heard of anybody doing it before.

MBB_Boy
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Re: 529 accounts, kids home due to covid, Room and Board

Post by MBB_Boy » Sun Aug 02, 2020 8:53 am

Triple digit golfer wrote:
Sun Aug 02, 2020 7:34 am
You are wanting to take money from your kid's 529 to pay yourself? Is that even allowed? You are not an education expense, as far as I know. I'd be interested in hearing if any other parents whose kid lived at home for all of college was able to do this.

Why not just take out whatever is left when college is over and pay the usual taxes/penalties of unused 529 money?
I assume the real goal is not to leave money stranded in the 529. Doubt OP actually keeps the money the kid "pays"

HomeStretch
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Re: 529 accounts, kids home due to covid, Room and Board

Post by HomeStretch » Sun Aug 02, 2020 9:12 am

Your methodology of allocating housing and food costs seems reasonable. Keep a copy of your computations and backup for your tax files.

I used a similar methodology per the thread I started on this topic found here (which I see you posted in):
viewtopic.php?f=2&t=293543. The amount I withdrew from the 529 account was reasonable and defensible in the event of IRS inquiry. It was also substantially less than the school’s published Cost-of-Living allowances for housing and meals for commuter students/students living at home.

Normchad
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Re: 529 accounts, kids home due to covid, Room and Board

Post by Normchad » Sun Aug 02, 2020 9:22 am

I don’t think the IRS will ever ask about these things, but wow, this feels like a big stretch to me.....

A lot of those proposed costs are fixed costs for you. Why would the IRS think that *your* property tax and *your* trash bill are qualified educational expenses?

There are other, seemingly much more directly related costs, that are not allowed. I don’t think this would pass muster.

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Re: 529 accounts, kids home due to covid, Room and Board

Post by Broken Man 1999 » Sun Aug 02, 2020 9:25 am

Will this be income to OP?

Broken Man 1999
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FiveK
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Re: 529 accounts, kids home due to covid, Room and Board

Post by FiveK » Sun Aug 02, 2020 9:40 am

Broken Man 1999 wrote:
Sun Aug 02, 2020 9:25 am
Will this be income to OP?

Broken Man 1999
No. It's an expense to the OP, whether having paid money to Enormous State University or the local grocery store, etc. The expenses qualify the 529 withdrawals.

av111
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Re: 529 accounts, kids home due to covid, Room and Board

Post by av111 » Sun Aug 02, 2020 1:29 pm

FiveK wrote:
Sun Aug 02, 2020 9:40 am
Broken Man 1999 wrote:
Sun Aug 02, 2020 9:25 am
Will this be income to OP?

Broken Man 1999
No. It's an expense to the OP, whether having paid money to Enormous State University or the local grocery store, etc. The expenses qualify the 529 withdrawals.
IANAL

When the OP collects rent and board from the students 529 account, I think it would be rental income for the OP.

OP can set the rent using the formula in the OP or using a comparable rent in the neighborhood

He should be able able to write off some expenses in the same way as you would handle renting a room in your home to a stranger. So the entire rent should not be taxable
AV111

turnturnturn
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Re: 529 accounts, kids home due to covid, Room and Board

Post by turnturnturn » Sun Aug 02, 2020 2:00 pm

is50xenough wrote:
Sat Aug 01, 2020 3:17 pm
I will point out that the school charges about $5400 per term and doesn't distinguish on campus, off campus or living at home and yes I checked web page for school and contacted them.
You might check College Navigator to see if they break down the cost estimate by living arrangement https://nces.ed.gov/collegenavigator. If I'm not mistaken, this is the site where colleges are required by law to post their cost estimates.

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FiveK
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Re: 529 accounts, kids home due to covid, Room and Board

Post by FiveK » Sun Aug 02, 2020 2:02 pm

av111 wrote:
Sun Aug 02, 2020 1:29 pm
IANAL

When the OP collects rent and board from the students 529 account, I think it would be rental income for the OP.
It's (probably) not the student's account. See 529 Plan Basics.

The OP specifically mentioned not collecting rent, just as the vast majority of parents with college-age children do not charge rent when the child is at home.

The issue is how much can be withdrawn from the 529 as a qualified withdrawal. The upper limit, if the student is not in on-campus housing, is whatever the school uses for financial aid purposes for the student's living arrangement.

Should one be audited, some reasonable justification for the actual amount used is needed.

Topic Author
is50xenough
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Re: 529 accounts, kids home due to covid, Room and Board

Post by is50xenough » Sun Aug 02, 2020 5:05 pm

FiveK wrote:
Sun Aug 02, 2020 8:16 am
Triple digit golfer wrote:
Sun Aug 02, 2020 7:34 am
You are wanting to take money from your kid's 529 to pay yourself? Is that even allowed? You are not an education expense, as far as I know. I'd be interested in hearing if any other parents whose kid lived at home for all of college was able to do this.
It's allowed.

See Publication 970 (2019), Tax Benefits for Education | Internal Revenue Service (emphasis added):
The expense for room and board qualifies only to the extent that it isn't more than the greater of the following two amounts.

The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.

The actual amount charged if the student is residing in housing owned or operated by the school.

You may need to contact the eligible educational institution for qualified room and board costs.
Food is food, whether provided by Enormous State University or local grocery stores.
Thanks for back up FiveK. I knew it was allowed from on BH posts but hoping for more collective knowledge from this group. I get sense not too many do it and most are very cautious if they do.

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is50xenough
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Re: 529 accounts, kids home due to covid, Room and Board

Post by is50xenough » Sun Aug 02, 2020 5:06 pm

Triple digit golfer wrote:
Sun Aug 02, 2020 7:34 am
You are wanting to take money from your kid's 529 to pay yourself? Is that even allowed? You are not an education expense, as far as I know. I'd be interested in hearing if any other parents whose kid lived at home for all of college was able to do this.

Why not just take out whatever is left when college is over and pay the usual taxes/penalties of unused 529 money?
Same as "paying yourself" if you bought a computer for your kid in addition to FiveK comments

RetiredCSProf
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Re: 529 accounts, kids home due to covid, Room and Board

Post by RetiredCSProf » Sun Aug 02, 2020 5:11 pm

Broken Man 1999 wrote:
Sun Aug 02, 2020 9:25 am
Will this be income to OP?

Broken Man 1999
Withdrawals from a 529 plan count as "income" to the beneficiary (student) if the student applies for financial aid the following year as an independent. For example, suppose that the student will turn 24 the following year and will continue as an undergraduate student. Then, in completing the FAFSA, the student would show 529 withdrawals as income.

Topic Author
is50xenough
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Re: 529 accounts, kids home due to covid, Room and Board

Post by is50xenough » Sun Aug 02, 2020 5:11 pm

turnturnturn wrote:
Sun Aug 02, 2020 2:00 pm
is50xenough wrote:
Sat Aug 01, 2020 3:17 pm
I will point out that the school charges about $5400 per term and doesn't distinguish on campus, off campus or living at home and yes I checked web page for school and contacted them.
You might check College Navigator to see if they break down the cost estimate by living arrangement https://nces.ed.gov/collegenavigator. If I'm not mistaken, this is the site where colleges are required by law to post their cost estimates.
Thanks. As I said, this site too only gives one "cost" as per the university when I called. I did use the site for comparison to what I came up with, so thanks.

Spirit Rider
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Re: 529 accounts, kids home due to covid, Room and Board

Post by Spirit Rider » Sun Aug 02, 2020 7:01 pm

av111 wrote:
Sun Aug 02, 2020 1:29 pm
When the OP collects rent and board from the students 529 account, I think it would be rental income for the OP.
This is not rental income. It is a reimbursement of a student's share of room and board expenses. Dependents do not pay rent, but they may pay a share of expenses.

Spirit Rider
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Re: 529 accounts, kids home due to covid, Room and Board

Post by Spirit Rider » Sun Aug 02, 2020 7:15 pm

RetiredCSProf wrote:
Sun Aug 02, 2020 5:11 pm
Broken Man 1999 wrote:
Sun Aug 02, 2020 9:25 am
Will this be income to OP?

Broken Man 1999
Withdrawals from a 529 plan count as "income" to the beneficiary (student) if the student applies for financial aid the following year as an independent. For example, suppose that the student will turn 24 the following year and will continue as an undergraduate student. Then, in completing the FAFSA, the student would show 529 withdrawals as income.
Only non-qualified withdrawals from a parent's/student's 529 count as income to the parent or student. Non-qualified withdrawals are taxable to the recipient. Therefore, only a non-qualified withdrawals from such 529s payable to the beneficiary would be assessed for FAFSA.

You might be thinking of a third party 529 owned by a grandparent etc... Qualified withdrawals from such 529s are considered untaxed income to the beneficiary and assessed for FAFSA.

Qualified withdrawals for room and board from a parent's/student's 529 are never assessed for FAFSA.

av111
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Re: 529 accounts, kids home due to covid, Room and Board

Post by av111 » Mon Aug 03, 2020 8:49 am

Fivek and Spirit rider thanks for correcting me. Is there a time limit for withdrawals from 529 for these expenses
AV111

Spirit Rider
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Re: 529 accounts, kids home due to covid, Room and Board

Post by Spirit Rider » Mon Aug 03, 2020 9:26 am

av111 wrote:
Mon Aug 03, 2020 8:49 am
Fivek and Spirit rider thanks for correcting me. Is there a time limit for withdrawals from 529 for these expenses
While there is no time limit specified in Section 529 of the Internal Revenue Code, IRS Publication 970 indicates that qualified distributions should be taken in the same tax year as the expenses. The IRS also tends to match up the applicable Form 1099-Q and Form 1098-T.

I always wanted to challenge the requirement, but chickened out once I received two CP-2000 notices on perfectly legitimate 529 distributions.

RetiredCSProf
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Re: 529 accounts, kids home due to covid, Room and Board

Post by RetiredCSProf » Mon Aug 03, 2020 4:46 pm

Spirit Rider wrote:
Sun Aug 02, 2020 7:15 pm
RetiredCSProf wrote:
Sun Aug 02, 2020 5:11 pm
Broken Man 1999 wrote:
Sun Aug 02, 2020 9:25 am
Will this be income to OP?

Broken Man 1999
Withdrawals from a 529 plan count as "income" to the beneficiary (student) if the student applies for financial aid the following year as an independent. For example, suppose that the student will turn 24 the following year and will continue as an undergraduate student. Then, in completing the FAFSA, the student would show 529 withdrawals as income.
Only non-qualified withdrawals from a parent's/student's 529 count as income to the parent or student. Non-qualified withdrawals are taxable to the recipient. Therefore, only a non-qualified withdrawals from such 529s payable to the beneficiary would be assessed for FAFSA.

You might be thinking of a third party 529 owned by a grandparent etc... Qualified withdrawals from such 529s are considered untaxed income to the beneficiary and assessed for FAFSA.

Qualified withdrawals for room and board from a parent's/student's 529 are never assessed for FAFSA.
When a dependent student completes the FAFSA, they include a 529 plan owned by parent(s) as the parent's asset. When an independent student completes the FAFSA, parent's assets are omitted from the FAFSA form. Thus, for an independent student, the 529 plan is treated in the same way as a plan owned by grandparent(s). The 529 is not considered an asset, but distributions from the plan to the student are treated as untaxed income. When I called FAFSA, they confirmed this, and I have been unable to find anything to the contrary.

TheDDC
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Re: 529 accounts, kids home due to covid, Room and Board

Post by TheDDC » Mon Aug 03, 2020 8:29 pm

This is such an awesome idea. I would debit the 529 for the maximum permitted student lodging and food expenses based on a reading of documentation from the university.

-TheDDC
Rules to wealth building: 90-100% VTSAX piled high and deep, 0-10% VIGAX tilt, 0% given away to banks, minimize amount given to medical-industrial complex

Spirit Rider
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Re: 529 accounts, kids home due to covid, Room and Board

Post by Spirit Rider » Mon Aug 03, 2020 9:04 pm

RetiredCSProf wrote:
Mon Aug 03, 2020 4:46 pm
When a dependent student completes the FAFSA, they include a 529 plan owned by parent(s) as the parent's asset. When an independent student completes the FAFSA, parent's assets are omitted from the FAFSA form. Thus, for an independent student, the 529 plan is treated in the same way as a plan owned by grandparent(s). The 529 is not considered an asset, but distributions from the plan to the student are treated as untaxed income. When I called FAFSA, they confirmed this, and I have been unable to find anything to the contrary.
Assuming facts not in evidence aren't we. Where did the OP indicate the student was independent or provide facts to support such a conclusion.

RetiredCSProf
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Re: 529 accounts, kids home due to covid, Room and Board

Post by RetiredCSProf » Mon Aug 03, 2020 10:04 pm

Spirit Rider wrote:
Mon Aug 03, 2020 9:04 pm
RetiredCSProf wrote:
Mon Aug 03, 2020 4:46 pm
When a dependent student completes the FAFSA, they include a 529 plan owned by parent(s) as the parent's asset. When an independent student completes the FAFSA, parent's assets are omitted from the FAFSA form. Thus, for an independent student, the 529 plan is treated in the same way as a plan owned by grandparent(s). The 529 is not considered an asset, but distributions from the plan to the student are treated as untaxed income. When I called FAFSA, they confirmed this, and I have been unable to find anything to the contrary.
Assuming facts not in evidence aren't we. Where did the OP indicate the student was independent or provide facts to support such a conclusion.
No facts assumed about the OP's student. I was responding to a question on the circumstances under which qualified distributions from a 529 fund to a beneficiary would be considered as income. In certain situations, a qualified distribution is considered untaxed income to the student when applying for financial aid as an undergraduate. This is something to consider for students who turn 24 before graduation -- e.g., take a gap year and / or take more than the traditional four or five years to complete their undergraduate education.

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