Qualified 529 expenses

[anonymouse1]

I know you can claim at least as much as the "estimated cost" from the school is. The "estimated cost" assumes a double (I think in one of the freshman dorms), and since freshmen are required to have an Unlimited meal plan, probably the least expensive "Unlimited Basic" (no guest meals, no "dining dollars") plan.  Can you claim actual cost up to "equivalent costs" (for example, the apartment-style dorm DD was in last year which was 4BR/1BA is now $4623 and she's renting a 3BR/3BA furnished apartment and it should be less for the semester even counting utilities)? Do you only get to claim rent for September if classes start September 2nd, even if the lease starts August 1 and move-in for the dorms is before Labor Day (September 1), and 5 months' rent is less than 1 semester in the dorm (at least the equivalent junior/senior housing, not the "estimated cost" freshman double)? Do you get to claim rent for all of May if graduation is May 5 2026 (and dorms would let you stay until that day or a day later) or do you have to prorate? We're looking at 10 months' rent being less than 2 semesters in the (senior) dorm. If she can't sublet to someone for June and July we'll just have to pay those months out of pocket.  But I'm wondering if we can just submit $814x5 = $4070 for each fall and spring for rent, and up to the $3430 cost of the Unlimited Basic meal plan for groceries, or if fall is going to be limited to $814x4 = $3256 for rent and just slightly more (4 months plus 5 days in May?) for spring rent?

[Hal_Al]

Off campus rent and food are eligible expenses for a 529 distribution, but the amount is limited to the lesser of your actual cost or  the schools "allowance for cost of attendance" (COA) for financial aid purposes. Although COA is basically, and usually,  what the school charges on campus students for Room and board, you can't use that in an unclear situation, like yours. The COA is usually published by the school and on the web site.

See this off campus explanation:

https://www.glassjacobson.com/blog/529-off-campus-housing/ 

In most off campus situations, the COA is going to govern. That said, your actual costs would have to be prorated, for the actual time school was in session, e.g. you don't get to claim rent for all of May if graduation is May 5 2026. 

[anonymouse1]

Thanks - there is no difference in COA for food and housing for on-campus vs off-campus given.  Drilling down more into the costs (given as a combined number), a double is assumed to be $3477/semester and the meal plan is assumed to be the "flex" plan which is the middle tier with some "dining dollars", for $3580/semester.  Since they are combined on one line in the COA, is it allowed to take up to the entire $7057/semester for rent, utilities, and food, or is it limited to a maximum of $3477 for rent and utilities and up to $3580 for food?  Meaning, can she withdraw the $814 monthly rent (let's say times 4 since there are only 4 full months per semester - we'll deal with the few extra days in May next year), for a total of $3256 and she can reimburse herself for up to say $100/month for utilities if she only spends $3400 on food, including the 25-meal "commuter" plan she's chosen (subsidizing the utility bill out of her food allowance)?  We have no idea what to expect for utility bills - or food, for that matter - in the current economy.  You would think that $769/month for food and $100/mo for utilities (split with 2 other roommates) would be enough, but the school is very close to the Canadian border and I presume the local electric company buys electricity from Canada.

[Hal_Al · Accepted solution]

Q.  Since they are combined on one line in the COA, is it allowed to take up to the entire $7057/semester for rent, utilities, and food?

A. Yes. 

Q. I know you can claim at least as much as the "estimated cost" from the school is. Right?

A. No; just the opposite. You may claim no more that the estimated "cost of attendance" (COA). 

[anonymouse1]

Thank you.

[anonymouse1]

Followup question - since her electricity is included in the rent only up to a certain extent (which looks minimal!), last month saw a large increase in the amount billed by the apartment complex, as the bill due November 1 included November rent plus the "excess" electricity for September, according to the October meter reading.  With the electricity bill being charged 2 months in arrears, how is this handled in regards to 529 reimbursement?  Should she make a payment in December (if the apartment complex will allow it) toward the bill due by January 5 for January rent and November (and maybe December) electricity (though in reality, the apartment complex will credit the amount exceeding the November electricity to January rent and not December electricity)?

Spoiler

Should she pay the entire January bill (I'll assume she gets notice of what it is before January 1) in December if we think there is enough time to claim reimbursement from the 529?

Or should she just pay December rent and October electricity on December 1 and submit the charge for reimbursement (along with all the food expenses) for reimbursement ASAP (as soon as she stocks her pantry again for December), and then claim what she actually paid the apartment complex January - May (May rent prorated for 5 days, but the electricity portion which was for March not prorated?) as "room and board" since that's when the charges were paid, though not incurred?  What do we do about April and May (prorated for 5 days) electricity charges that will be billed to her (even if she sublets her room after graduation until the end of the lease) in June and July?

[Hal_Al]

Q.  Should she pay the entire January bill  in December if we think there is enough time to claim reimbursement from the 529?

A. Expenses for an academic term that starts in the first 3 months of 2026, but are paid for in 2025 count for educational tax benefits on your 2025 tax return. So, yes, a 529 distribution, in 2025,  would be valid. 

But, again, in most off campus situations, the COA is going to govern.

Any expenses paid in January 2026 cannot be counted towards a 529 distribution taken in 2025.  Any expenses incurred in 2025, but not paid for until 2026, cannot be counted toward either a 2025 or 2026 529 distribution. 

[anonymouse1]

I know expenses paid at the end of the calendar year for a term starting in the beginning of the next can be claimed the calendar year they were paid.  This is the opposite because of the lag in billing.

But more to the point, if she pays the entire bill from the apartment complex (January rent and November electricity) in January, and continues every month until May, will se have to prorate the entire May payment since graduation is May 5, or can she just prorate the rent part for those 5 days, but claim the entire electricity charge, and also claim the electricity bill(s) for April (which will be due in June) and May (the apartment complex will prorate for her ending the date she turns in the key, at least they didn't charge her electricity for August until she picked up her key even though we paid rent July 1 and August 1) which she'll probably get a separate bill for, either later in June or in July?

It's the electricity bill being charged 2 months in arrears which has got me confused as to how to claim.  We paid $11 for a few days' worth of electricity in August, before classes started the day after Labor Day, we have not claimed that from the 529 and wouldn't, just as we didn't submit for July or August rent.  But I want to make sure that she is allowed to claim all the electricity she used during the spring semester, and it would be really nice if she could pay and claim fall electricity (at least to include November - from the December meter read) before the end of 2025 but we just don't know when she'll even get the bill for that, it may be too close to the end of the year to submit it to the 529.  Since it's likely to be around $150/mo for November I'd like to get that covered by the fall COA because spring electricity bills to include December - April (and 5 days in May) are going to be more, because of the extra month, even though the COA for the semester is the same.  If we don't find a way to pay and submit the November electricity bill before the end of 2025, fall's R&B expenses will look like 4 months' rent and groceries, but only 2 months' electricity, and spring's expenses will be 4.25 months' rent and groceries but 6.25 months' electricity.  I'd like to shift that to 3 months' electricity in the fall and 5.25 months (as long as the last 2 months' can be paid after graduation and still be allowed to be reimbursed) in the spring.