529 Is Room & Board a Qualifying Expense? We have been told for years to save in a 529 & the money withdrawn for Tuition AND Room & board is Tax Free. Not true??

[JG3]

Regarding 529 - Plain and Simple - Is Room and Board a Qualifying Expense?  We have been told for years to save in a 529 and the money withdrawn can be used for Tuition AND Room & board - Tax Free. Is that not the case?  Turbo tax asks for the 1098-T, which only lists the Tuition portion of our student's expense, not Room & Board.  The 1099-Q lists the total distribution which is essentially double the Tuition.  Turbo tax is telling us that we have to pay tax on the entire earning portion of the distribution that we took for Room and Board.  I'm I reading this correctly?  

Thank you.

[DDollar · Accepted solution]

Yes, room and board are qualifying expenses that can be paid with 529 funds.  First enter the 1099-Q, under 529 distributions. Then enter educational expenses, at the ed expense section, including room & Board. TurboTax will apply it to the 529 distribution.

To get the screen to enter Room & Board, answer yes when asked if you paid for Books or Materials to Attend School?

  For more information on what you can pay with 529 funds, see the following website: https://www.savingforcollege.com/article/what-you-can-pay-for-with-a-529-plan

[Edited 01-16-2019 | 10:29 PM EST]

[JG3]

David,  Thank you for the quick reply and the link.  It's comforting to know that room and board are qualifying expenses when paid with VA529 funds.  Unfortunately, if Turbo Tax takes 1098-T form literally then taxes are indeed applied.  In this case (and many cases from what I read), the college's 1098-T form lists only the Tuition component as payments received and does not include the room & board component that we paid the college.  The 1099-Q shows the total withdraw we took to cover both.  So as a close example, if the 1099-T shows $6,000 for qualified Tuition expenses paid (for semester in this case) and the 1099-Q shows $12,000 gross distribution then Turbo tax concludes  $6,000 of "non-qualified" expenses and advises that we must pay tax on the earnings portion ($4,200) of that distribution.  Again, in this example, Tuition was $6,000 for the semester and Room & Board was $6,000 for the semester.  

[DDollar]

I understand what you are saying.  I have a daughter in college and I pay her tuition, room & board with 529 funds.  The difference is, tuition qualifies for tax credits, like the American Opportunity Credit, room & board does not.  Moreover, many students don't live on campus, so they don't pay their rent to the school, therefore it wouldn't be on the 1098-T even if schools included room and board.  Even though the room and board doesn't qualify for a tax credit or deduction, it is a qualifying expense that can be paid from a 529 plan without incurring a penalty.  The catch is that you have to enter the room and board in the education expense section.  I originally missed that, because you have say you paid for "books or materials to attend school".  I don't know why it doesn't ask if you paid room and board!

[JG3]

David, again thank you.  Yes, I was able to have Turbo tax let me enter room and board amount.  The remaining question is, will this satisfy the IRS, or does the IRS JUST go by the figures on 1098-T and 1099-Q?  We have excellent records and receipts from the college documenting our Room & Board payment but these don't show up on the 1098-T.  Thank you.

[DDollar]

You will be fine.  It is highly unlikely the IRS will want to see your records for room and board, but if they do, you've got them.  All you would have to do is make copies and mail them IRS if asked.  You've go nothing to worry about.

[JG3]

We have similar stories then!  Interesting, I went back to do my daughter (his twin at the same university) and I cannot find the option within TurboTax to enter Room & Board again.  Strange, it worked for him and their circumstances are identical.  Perhaps, I have to delete her altogether and reenter both her 1099Q and 1098T?  Also, I assume that this will be all on my return.  I do not do returns for them as they make way below the required wages per year and I claim them as dependents.  Also we do not qualify for the Education credit, which I suspected.  Thanks also for your answer about keeping records if ever needed by the IRS.  again, any hints on how to get back to the room & board prompt would be great!

[DDollar]

Go to "Deductions and Credits", scroll down to "Education" (If you don't see Education, click on "See All Tax Breaks" Nest to "Expenses and Scholarships (Form 1098-T)" Click on "Revisit".  Either click on "Add another Student", or Edit the one in question. Go to "Other Education Expenses (for all schools)" On the page with "Did [daughter] Pay for Books or Materials to Attend School?"  Indicate Yes. Enter the amount for Room & Board

[JG3]

Thanks David!  Yes, deleting my original entry for her and then "adding another student" did the trick.  I must have not stated "books or materials to attend school" so I think TT wouldn't let me back in to add the room & board. I love TurboTax's UI and navigation but the Education section is not 100% intuitive... so thanks!  Thanks also for the off-campus expenses advise.  My son will be going through that next year 🙂  Good luck to you and your daughter!

[DDollar]

Thanks!  Same to you.  And thanks for using TurboTax!

[JG3]

Hi David, How are you? I'm not still if you are still there but Turbo Tax says, "Looks like your 1099-Q is taxable"  This is absolutely ridiculous as the distribution equals exactly the sum total of tuition and room and board.  It then says"Based on the education expenses you entered, the student beneficiary must report $2,253 of taxable income from this distribution"  Is this just Turbo tax form error or is this real?  Thanks!

[IUPU2]

Claiming Room and Board works for my undergrad daughter.  However, when i make the same set of entries for my daughter in Graduate school, and select Yes for books, supplies, and equipment - there is no place to enter Room and Board as there is for my undergrad.  Are the rules different for a full time grad student, or is there a problem with TurboTax?

[DaveF1006]

These are two different educational credits. For your undergraduate student, she is eligible for the American Opportunity Credit, which allows Room and Board expenses to be applied. This is best educational credit to receive.

Your graduate student is only eligible for the Lifetime learning Credit. This credit does not offer the same flexibility as the American Opportunity Credit because Room and Board is not an eligible expense for this credit.

Please review this Turbo Tax link for more details..

[bx]

Many colleges have closed dorms for the balance of the Spring 2020 semester and may be refunding  a portion of room and board.  If the room/board were billed in 2019 (for Spring 2020)  paid with a 529 plan in 2019, but the credit is issued in 2020, how is that handled? 

[JohnB5677]

Under normal circumstances it would be an adjustment in 2020.  But circumstances are not normal right now.  This will have to be a wait and see what happens moment.