college campus

With tuition and room and board payments coming due while many colleges and universities have yet to finalize their plans for the upcoming semester, parents remain anxious about the health, financial and social-emotional implications of sending their students off to campus. Those who have invested in 529 college savings plans may not realize, however, that there is flexibility built into these plans that may be helpful with the type of scenarios that may develop at this unprecedented time.  

A quick look at the following scenarios may help put 529 investors’ minds at ease: 

A Possible Gap Semester or Year:  If some or most of their courses are likely to be online versus in person, many students are uncertain about whether it makes sense to immediately continue with their higher education studies this coming semester or school year. Accordingly, some are considering a gap year or semester. Fortunately, for those who have saved in 529 plans, there are no beneficiary age limits or time limits in which 529 funds need to be used.  Thus, the funds can remain in the account until your child returns to school.  

A Change in Housing Arrangements:  The availability of student housing is currently in flux at many colleges and universities as pandemic-related adjustments are being made to living and dining arrangements.  Some students have been forced to quickly find alternative housing options as certain colleges and universities are lowering the number of dormitory rooms previously available to give priority to students who need to have “single” rooms because of underlying health conditions and/or to set aside a supply of rooms to isolate students who have been exposed to the coronavirus or who need to be quarantined. Additionally, students who originally did not plan to be on campus in the Fall but who will now be as a result of study abroad or internship experiences being cancelled are also having to find alternative housing options with little or no space available on campus. Lastly, with worry about potential exposure in a communal living setting, some parents, out of an abundance of caution, may be looking elsewhere for housing options where students could live alone or with just one or two others to help limit their chances of possible exposure. Accordingly, off-campus housing is now in demand.

As a 529 account owner, if you decide to have your beneficiary live off-campus versus on-campus for any reason, as long as your account beneficiary is enrolled at least half-time, you can use your 529 account to cover the cost of living off campus to the extent it does not exceed the allowance for room and board, as determined by the school, that is included in the cost of attendance (for federal financial aid purposes). You can typically find this information listed on the school’s website.

Newly-Required Equipment, Supplies or Services:  There may be new requirements for attendance this coming semester that were not previously in place.  For instance, if your student’s classes are now fully or partially online versus in person and if a computer, internet connectivity, software or other computer-related equipment or services are now required for enrollment or attendance but are not provided by the school, you may use your 529 plan to cover those costs as long as the items are being primarily used by the student in connection with enrollment. Likewise, if masks or other protective equipment are required for enrollment or attendance but not provided by the school, it is likely you could use your 529 plan for those as well. As always, be sure to retain receipts for whatever purchases are made with 529 funds. 

Refunds:  If your student decides to delay enrollment, drop out of school after classes begin, or if the semester comes to an abrupt halt after you have taken a qualified withdrawal from a 529 plan and paid the school, you have 60 days from the date of any refund to re-deposit it in a 529 plan to avoid the withdrawal being considered “non-qualified” and subject to tax consequences.  

While nothing will fully put parent and student minds at ease during this time of uncertainty, hopefully understanding the flexibility built into 529 plans will be of some value.