@Hal_Al wrote:
Q. Can Coverdell and/or 529 college savings plans be used to cover room and board if your full time college student is living at home with parents.
A. Actually the answer is yes. It's clearly yes in the case of food (board). You are limited to your actual cost or the amount the school charges resident students, whichever is less. If the student is paying rent to the parents, you may claim "room"; again the amount of rent he actually pays or the schools room charge, whichever is less. It's not clear whether "room" is allowed otherwise, as there is little or no incremental costs to the parents.
I know @Hal_Al is much more expert than me on this, but three doubts come immediately to mind.
1. Even if the student's food (at home) is allowed, I can see a recordkeeping problem for the parent in proving how much the student's food costs.
2. The school would still have to include an allowance for room and board in the student's financial aid package. And the maximum allowable cost would not be what the college charges for food on-campus, but what the off-campus allowance is.
3. If the student pays rent, to allow the parents to use the ESA, the parents have to report the rent on their tax return, which will cause all kinds of other paperwork problems, may result in taxable income to the parents (depending on the expenses and depreciation they claim) and will create a taxable event when they sell their house, even if they would normally qualify for the capital gains exclusion.
On the other hand, I just checked my college's web site and their on-campus cost for room and board is $11,500, and their financial aid package allows $4,800 for room and board as part of the "cost of attendance" for students who live with their parents. In that case, and based on a reading of publication 970 and section 529, a parent could withdraw $4,800 from the ESA to cover room and board for a student living at home and attending my college, without having to show either food bills or rent payments.
