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 We have been told for years to save in a 529 & the money withdrawn for Tuition AND Room & board is Tax Free.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??

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June 6, 2019
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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 We have been told for years to save in a 529 and the money withdrawn can be used for Tuition AND Room & board - Tax Free.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.

TurboTax Deluxe Online

Best answer by DavidD66

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]

DavidD66Answer

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]

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JG3Author

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.