529 Plans

Can I Use My 529 Plan to Pay for Room and Board?

Knowing what expenses you can pay with a 529 plan can get complicated. Learn what types of 529 plans can be used to pay for room and board.

January 14, 2020
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Sootchy Team
Can I Use My 529 Plan to Pay for Room and Board?

Paying for college is a task that many families struggle with, thanks to the huge – and growing – price tag on a college education these days. Thankfully, there are a number of financial accounts and other tools that families can use to effectively save up for college, the most popular of which is the 529 plan. Each state offers at least one version of this plan, which provides tax advantages and other financial benefits that help to make college more affordable. However, the list of accepted uses for these plans is limited, leaving some to wonder what they can pay for with their 529 plan. One common question: “Can I use my 529 plan to pay for room and board?” To find out, keep reading as the 529 plan experts at Sootchy tackle this important topic.

Types of 529 Plans You Can Use for Room and Board

Though they all fall under the umbrella of the 529 plan, there are actually three varieties of this financial account, each with its own limitations and benefits. We’ll outline each of these plans below:

529 Education Savings Plan

The most popular of the 529 plans is the education savings plan, which is both widely available – every state has a version – and relatively flexible. The education savings plan can be used to cover a number of different education-related costs, and its uses are not limited to college; families can leverage one of these plans to help pay for private elementary or secondary education, apprenticeships, and trade schools, too.

Should you choose to use it to cover the cost of a college education, your 529 education savings plan can be used to pay for both tuition and room and board, as well as extras like fees, books, computers, lab equipment, and other necessary expenses.

ABLE (529A) Account

The most flexible of the 529 plans, ABLE accounts are intended to help Americans living with disabilities cover a variety of expenses, including those related to education. Someone with an ABLE account can use the funds to pay for all the same education-related expenses that an education savings plan covers – tuition, fees, room and board, supplies – as well as other expenses related to their condition, including job training, housing, and medical bills.

Prepaid Tuition Plan

As the name suggests, the prepaid tuition plan is the narrowest of the 529 plans in terms of its acceptable uses. Generally speaking, these plans are intended to help families cover the cost of tuition, specifically, with many plans pushing owners to use the funds at in-state schools. Because a prepaid tuition plan effectively locks in today’s price of tuition, rather than what you might pay in 17 or 18 years, it can undoubtedly be a useful savings option, but it can’t be used to pay for room and board.

Benefits of Using Your 529 Plan to Pay for Room and Board

Though there are many financial tools available to help pay for room and board when your loved one heads off to college, 529 plans regularly top the list for a few reasons.

Firstly, 529 plans come with some unparalleled tax benefits that can provide thousands of dollars in savings for families, especially if you start the account early in your child’s life. That’s because a 529 plan is an investment account that takes time to mature; unlike with other investment accounts, however, the gains on a 529 plan accumulate free from federal – and, in most cases, state – income tax. In other words, if you pick an account that performs well and make deposits quickly, you could see significant tax-free gains that you can then spend on your loved one’s education.

Secondly, there are many different 529 plans to choose from, as almost every state allows out-of-state residents to sign up for their plan. Naturally, some plans perform better than others, and the amount you’ll have to pay in fees will vary from one plan to another as well. That said, it’s worth noting that more than a few states offer tax deductions or credits to residents who invest in their 529 plan, so check your state’s policy before looking elsewhere.

Lastly, many of the most popular 529 plans offer great flexibility when it comes to investments. In general, there are two categories of investment portfolios with 529 plans: static portfolios and age-based portfolios. The first, static portfolios, is determined entirely by the account owner; you’ll pick from a list of investments to customize your portfolio, and those investments won’t change unless you say so.

The second type, age-based portfolios, are designed to go from more aggressive early in the beneficiary’s life to more conservative as they approach college age; this goal is to earn as much as possible through riskier investments when there’s still time to make up losses before changing strategies to protect those earnings.

Consider a 529 Plan to Help Pay for Room and Board at College

In addition to their myriad financial benefits, 529 plans go even further by creating a way for your family and friends to contribute to your loved one’s education. Most 529 plans allow virtually anyone to donate to an account, and in many states, their contributions could even earn them a tax break. If you would like to open a 529 plan or just explore your options, download the Sootchy app or visit us online today and let our experts help you find the right plan for your family.

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