A 529 plan can be used for Rent and Tuition costs during the academic year. According to Education Data, over 45.3 million people in the United States are currently paying off student loan debt. With this in mind, parents across the country are trying to figure out the best way to save for their child’s education. One of the best Savings options is to open a 529 plan, which covers more than just tuition alone.

Since room and board is one of the most significant college expenses, you might be wondering, “Can I use my 529 to pay rent throughout the academic year?” Thankfully the answer is yes, but there are specific criteria that need to be met to do so.

In our guide, you’ll learn what a 529 plan is, how to open an account, how to pay rent using your plan and the tax benefits associated with a 529 so you can make the right decisions for your college savings plan.

What is a 529 plan?

A 529 plan is an investment plan created to help save for future education expenses. Savings from this plan can go toward K-12 education, apprenticeship programs or college tuition payments. The program works similar to a 401(k) savings plan, except it is used for education instead of retirement. 529 plans are also referred to as Qualified Tuition Programs.

Types of 529 plans

There are two major types of 529 plans that are state-sponsored or sponsored by private universities. The 529 savings plan and prepaid tuition plans have some major differences that participants should consider before selecting the plan that’s best for their needs.

Savings Plan

529 savings plans are typically state-sponsored and allow the saver to put money into their account. The money is then invested into the plan’s portfolio. The account holder can choose where their funds are invested and have a mix of mutual funds, ETS or protected bank products. As the investor, you can adjust your holdings with target-date funds so that your investments become more conservative the closer you get to entering school or college.

Prepaid Tuition Plan

A prepaid tuition plan is less common than a savings plan because it’s only offered in a limited number of states and fewer than 250 private institutions. The main objective is to guarantee that the account holder will pay the current tuition price before inflation begins to increase the cost year after year. Participants can choose to pay full or part of their tuition in advance, and these investment funds will continue to grow in their account over time.

What are the steps to opening your 529 plan?

Signing up for financial aid or savings programs can seem intimidating when you focus on the financial obligations and paperwork associated with it. Thankfully, 529 plans are relatively simple to sign up for and can be done online and from the comfort of your own home.

Below are the steps you need to take to set up your 529 plan today:

• Step 1: To start the process, it’s important to do some research and decide if a 529 savings plan or prepaid tuition plan is right for you. First, select whether you want to pay for in-state or out-of-state tuition. Once you’ve made this decision, you can use online calculators to look at the tax benefits associated with each plan. Use these calculations to help you decide which plan will give you the maximum amount of savings.
• Step 2: Next, open an account online or mail in your application by downloading it from a website or calling to request that your form is sent to your home address. Make sure to have your personal information, Social Security number and address handy while filling out your 529 plan application form. Choose your intended beneficiary when filling out the application, but also keep in mind that you can change the beneficiary at any time.
• Step 3: After you open a 529 plan account, start to create a plan for your portfolio by choosing where you want your investments to go. It’s common for investors to select age-based investments to simplify the process. Age-based investments automatically move from riskier investments to less risky as a student starts to reach college age. Account holders are allowed to make two investment changes per year.
• Step 4: The final step is to submit your application and deposit funds into the account. If you’re submitting your application online, then you can connect your bank account to your 529 plan to automatically deposit money each month or set it up to make deposits manually. When filling out a physical form, then you need to include a check when you submit your application through the mail.

If you would like to apply for scholarships to receive additional financial aid aside from your 529 plan, then we’ve got you covered. Print out our scholarship application organizer so you never miss a due date.

How do I use my 529 plan to pay rent?

Students must be enrolled in college on at least a half-time basis to use their 529 savings plan to pay for room and board. You can use your 529 savings plan to pay for either on-campus or off-campus housing, as long as you were billed during the academic year.

You cannot use a prepaid tuition plan for room and board. If you want the flexibility to use your 529 plan for paying rent, then it’s best to invest in a savings plan instead of or in addition to your prepaid 529 plan.

Contact your college’s financial aid office to determine how much of your 529 plan you’re allowed to spend on rent and board.

How do I pay for on-campus housing with a 529 plan?

The good news is that it’s relatively easy to use your 529 savings plan to pay for on-campus housing. Meal plans also qualify as an approved expense when it’s a part of your room and board.

How do I pay for off-campus housing with a 529 plan?

There are some additional protocols when you use your 529 savings plan to pay for off-campus rent. A major requirement is that your rent must be equal to or less than a college’s cost of attendance to qualify for off-campus housing. A cost of attendance is the sum of tuition and fees associated with attending college.

It’s crucial to save all receipts from utilities, groceries, rent and additional costs when living off-campus or at home with your parents. Add up your expenses each week to keep track of your spending until you reach the maximum amount you can withdraw tax-free from your 529 plan.

How do I pay for my study abroad program housing with a 529 plan?

Your 529 savings plan can pay for your rent during your study abroad program as long as you’re receiving academic credit for the program from your university. This also can be applied to summer programs if you are enrolled as a half-time college student.

How does a 529 plan impact your taxes?

One of the major benefits of opening a 529 plan is the tax advantages you can expect to receive. These benefits stretch across state and federal taxes.

Do you have to pay taxes on a 529 plan?

The good news is that you don’t have to pay federal income tax on qualified withdrawals from a 529 plan. This usually applies to state income tax as well.

However, when withdrawals exceed adjusted qualified education expenses (QHEE), it becomes a non-qualified withdrawal. This means all or some of the withdrawn earnings having the potential to be taxed.

Another reason you might have to pay taxes on your 529 plan withdrawals is accidentally taking money in the wrong year. To avoid this problem, set up your 529 plan to go directly to your college bursar each payment period.

What are qualified 529 plan expenses?

529 plans have qualified and unqualified expenses that can impact whether you’re taxed when you withdraw money from your plan.

QHEE includes “tuition, fees, books, supplies, computers and related equipment, the additional expenses of a ‘special needs’ beneficiary,” student loans and a limited amount of room and board.

How can I find my next off-campus apartment?

Paying for tuition with room and board can be expensive. Thankfully, a 529 plan can help take on some of the burdens off your shoulders with a bit of planning. If you’re looking for your next off-campus apartment, check out Apartment Guide’s finder tool to find your dream place.

Additional resources

Housing

• Apartment Guide
• Affordable Colleges
• Money Geek
• EDUMED

Financial aid and scholarships

• Student Debt Relief
• Federal Student Aid
• Affordable Colleges 
• The Balance

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