The above answer is correct, Room and Board Expenses CAN be used to offset the tax on a distribution made from an Education Savings Account.
There is often confusion because there are different requirements for expenses used to offset tax on Scholarships versus expenses allowed to be used to offset tax on distributions.
Note that the amount you can use for Room and Board costs cannot exceed what the school would allow, although you do not need to reside in the school's housing.
According to the IRS:
“For purposes of tax-free scholarships and fellowship grants, these are expenses for: • Tuition and fees required to enroll at or attend an eligible educational institution; and • Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction. Expenses that don't qualify. Qualified education expenses don't include the cost of: • Room and board, • Travel, • Research, • Clerical help, or • Equipment and other expenses that aren't required for enrollment in or attendance at an eligible educational institution.”
Expenses that may be applied to a 529 Distribution-
“Qualified Higher Education Expenses These are expenses related to enrollment or attendance at an eligible postsecondary school. As shown in the following list, to be qualified, some of the expenses must be required by the school and some must be incurred by students who are enrolled at least half-time. 1. The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school. a. Tuition and fees. b. Books, supplies, and equipment. 2. Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school.
3. Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). The expense for room and board qualifies only to the extent that it isn't more than the greater of the following two amounts. a. 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. b. 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.
4. The purchase of computer or peripheral equipment, computer software, or Internet access and related services if it is to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible postsecondary school. (This doesn’t include expenses for computer software for sports, games, or hobbies unless the software is predominantly educational in nature.)”
Pub 970 Page 40
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