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What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?
What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?
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Thinking of Using Your 529 Plan to Buy Your Kid a House? Here’s What The Rules Say
Can you buy your college aged child a house to live in for college using a 529 plan?
This question is about qualifying 529 plan expenses.
Buying a condo or house near campus is a popular move for parents who want to save on dorm costs and maybe turn a profit when they sell after graduation. The logic seems airtight: a 529 plan can pay for room and board, and housing is room and board, so why not let the account cover the mortgage? The short answer is maybe.
The longer answer is that you can use 529 money toward housing in a narrow set of circumstances, but doing so can erase the very tax advantages that make a 529 worth using in the first place.
Here is how the rules actually work, and where families get tripped up.
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Mortgage Payments And Other Direct Home Ownership Payments Don’t Qualify
In simple terms – a mortgage payment, property taxes, and insurance are all homeownership expenses, NOT education expenses.
When a parent buys the property and signs the mortgage, the debt belongs to the parent, not the student. The student is not paying a housing cost. Rather, the parent is paying down a loan.
The problem does not disappear if the student owns the home and holds the mortgage. A mortgage payment is still a payment on a loan rather than a payment for housing.
The IRS treats paying a mortgage as a non-qualified expense regardless of whose name is on the note. Pull 529 money to make that payment and the earnings portion of the withdrawal becomes subject to ordinary income tax plus a 10% penalty.
There is also a double-dipping rule worth knowing. Even in a scenario where a mortgage payment somehow counted, using 529 funds to make it would block you from claiming the home mortgage interest deduction on the same dollars.
The tax code does not let you take two tax breaks for one expense.
Renting A Home To Your Student (And The Catches)
The one legitimate path runs through renting the house to your student. If your child pays you rent, the rent itself can qualify as a room and board expense that 529 money pays for. You, as the landlord, can then use your rental income to cover your home’s expenses.
On paper, this turns a non-qualified mortgage into a qualified housing cost.
Catch 1 – Accounting For The New Income
The catch is on your side of the ledger. The rent your child pays you is rental income, and you have to report it on your tax return. So while the student takes a tax-free 529 distribution to pay the rent, the parent now has taxable income in roughly the same amount. In most cases, parents end up paying more in income tax through this arrangement.
A qualified 529 distribution normally avoids federal income tax and the 10% penalty on earnings, but here you are simply moving the non-existant tax bill from the student to your rental income – likely at a higher income tax rates than your as well.
Yes, you can deduct rental expenses against that income (mortgage interest, property taxes, insurance, utilities, maintenance, repairs, HOA or condo dues, and depreciation). That softens the blow, up to any limits (see Catch 2 and 3 below).
And remember, any depreciation you claim along the way gets recaptured and taxed when you eventually sell the property.
Catch 2 – Fair Market Value Rent
The rent also has to be “real” if you want to deduct your expenses and carry-forward any deductible losses. Under Rule IRC §280A(d) and IRS Publication 527: a day a family member who occupies the property counts as personal use by you, which triggers the limitation that caps deductions at rental income (no deductible loss) unless:
- the relative uses it as their main home and
- Pays a fair rental price.
You must meet both conditions so the property is treated as an ordinary rental. Basically you can’t discount the rent for your child.
It must reflect fair-market value for a comparable property — similar size, location, and amenities. The cleanest way to set it is a local rental survey, which a college housing office can sometimes provide.
Catch 3 – Cost of Attendance
The third thing to be mindful of is that your child cannot pay more than the certified cost of attendance for off campus housing. Every school publishes a number, and your maximum allowed cannot exceed it. And it may not be enough money to reach the fair market value rent in Catch 2.
For example, the University of Arizona publishes off-campus housing costs of be $12,750 per academic year (roughly 10 months). That breaks down to $1,275 per month.
That may not be enough to make the entire situation work financially, but it’s the maximum allowed to be withdrawn from the 529 plan to be considered a qualifying expense.
How This Impacts Your College Finances
For families weighing this strategy, the practical question is whether the tax math comes out ahead. Often it does not.
The headline appeal (tax-free 529 money flowing toward a house you own) runs into the reality that rental income is taxable and that the deductions are capped if you rent to your own child at below market rents. Run the numbers before committing, ideally with a tax professional, because the answer depends on your tax bracket, the property’s expenses, and what the property costs.
There are also limits on how much rent can qualify, no matter how the lease reads. The student’s rent counts as a qualified 529 expense only up to the college’s published room and board allowance for students living off campus, found on the school’s cost of attendance. That off-campus figure is typically higher than the at-home allowance but is still a hard ceiling. Any 529 distribution above it becomes non-qualified, with tax and the 10% penalty on the earnings.
Enrollment status matters too. The student must attend at least half-time for rent to qualify, and that includes the summer. If they are not enrolled at least half-time over the summer term, rent paid for those months does not qualify and you cannot fix it by waiving summer rent, since that would drop the annual rent below fair market.
One more consideration sits outside the tax code. If the parent owns the home, it can count against them for need-based financial aid. The FAFSA only ignores a parent’s primary residence and an independent student’s primary residence from the asset calculation, but there is no equivalent protection for a second home or rental property. That asset could significantly reduce any financial aid your child qualifies for.
People Also Ask
Can I use a 529 plan to pay the mortgage on a house I bought for my child near campus?
No. A mortgage payment is repayment of a loan, not a housing cost, so it isn’t a qualified room and board expense — even if your child holds the mortgage. Using 529 money for it triggers income tax plus a 10% penalty on the earnings.
Is there any legal way to use 529 money toward a home I own?
Yes. Your child can pay you fair-market rent and cover it with 529 funds, which qualifies up to the college’s published off-campus room and board allowance. But the rent is taxable income to you, which usually erases most of the tax benefit.
Does my child have to be enrolled full-time for the rent to qualify?
No, but they must be enrolled at least half-time — including during the summer. If they drop below half-time in any term, rent paid for those months stops qualifying as a 529 expense.
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Editor: Colin Graves
The post Thinking of Using Your 529 Plan to Buy Your Kid a House? Here’s What The Rules Say appeared first on The College Investor.
Xfinity Rewards: Get 2 Free Tickets to the 2026 Brickyard 400 NASCAR Race ($154 Value)
Xfinity Rewards: Get 2 Free Tickets to the 2026 Brickyard 400 NASCAR Race
Xfinity Rewards members can score 2 free tickets to the 2026 Brickyard 400 Presented by PPG at Indianapolis Motor Speedway on Sunday, July 26, 2026.
The offer provides a pair of seats with a value of about $154, bringing the total to $0 after applying the promo. The Brickyard 400 is one of NASCAR’s premier events and is scheduled for Sunday, July 26, during Brickyard Weekend.
You can see the offer page here. It won’t last long.
Google says AI training is fair use and copyright should be policed on outputs, not inputs
The RIAA, music publishers, and independent artists are all fighting AI companies in court over the same question: whether training a model on copyrighted work without permission is fair use.
Google, which builds its own AI music tools, has a direct stake in the outcome.
Now, in a new policy paper outlining the company’s preferred approach to AI regulation, Google has argued that training AI models on publicly available web data should “remain protected” by fair use in the US.
The paper also says copyright concerns raised by generative AI are best addressed at the level of outputs, not inputs – whether a specific piece of content copies an existing work, rather than how a model was trained.
The 21-page document, titled A Pragmatic Approach to AI Governance in America, was published on Thursday (June 25) by Kent Walker, Google’s President of Global Affairs.
On copyright, Google‘s paper states: “Using publicly available web data for training models is a transformative, non-expressive use – like an art student taking inspiration from walking through a gallery – that should remain protected under fair use in the U.S. and text-and-data-mining exceptions abroad.”
“Using publicly available web data for training models is a transformative, non-expressive use — like an art student taking inspiration from walking through a gallery — that should remain protected under fair use in the U.S. and text-and-data-mining exceptions abroad.”
Google says responsible developers should still give website owners control over whether their content is used for model development, through machine-readable tags such as its own Google-Extended control.
At the same time, the paper says Google is “exploring new types of partnership and value-exchange models” with rights holders.
It adds that Google has paid for access to specialized, non-public content, including creative and educational material.
On its broader approach to regulating AI, Google says: “We believe in an approach that is fundamentally data-driven, focuses on evidence of real-world benefits and harms, and accepts a degree of uncertainty to avoid regulations that slow progress without addressing real challenges.”
“This approach would address outputs, not inputs, looking to prevent and mitigate specific harms rather than micromanaging the science behind these new tools,” the Google paper adds.
On enforcement, Google argues the focus “should again be on outputs – in this case, whether a specific image or piece of text actually copies an existing work, regardless of how it was created.”
It says technical filters should not “automate subjective decisions like whether something is ‘too similar’ to a prior work,” and that infringing material is best handled through standard notice-and-takedown systems.
Google also says it has supported proposals, such as the NO FAKES ACT, to protect individual voices and likenesses by establishing “a balanced national standard against unauthorized digital replicas.”
Google has been making this case to US policymakers since the early days of the generative-AI boom.
In 2023, the company made the same case in a filing with the US Copyright Office, calling AI training a transformative fair use and saying courts, not new legislation, should resolve the question.
Google‘s defense of fair use for AI training lands as that same question is being contested across the music industry.
The RIAA, on behalf of Universal Music Group, Sony Music and Warner Music Group, sued AI music platforms Suno and Udio for “mass infringement” of copyright in mid-2024.
Udio has since moved from defending its training under a fair use argument to signing licensing deals with Universal, Warner, Merlin and Kobalt, though Sony Music‘s case against the platform remains active.
Music publishers brought a separate case against AI firm Anthropic in 2023, alleging it trained its Claude chatbot on their copyrighted song lyrics.
They have since filed a second, larger suit covering more than 20,000 songs and seeking over $3 billion in statutory damages.
In late March, the RIAA, the National Music Publishers’ Association and other industry groups urged a federal court to reject the fair use defense raised by Anthropic in the original case, arguing that the copying was “inexcusable.”
The paper’s pitch on “value exchange” also echoes a run of AI licensing deals in music, with the NMPA agreeing an industry-wide deal with Udio in June that President and CEO David Israelite called the first of its kind with a major AI music company.
Beyond copyright, the paper’s central proposal is a “frontier AI regulatory organization,” or FARO – an independent, industry-funded body, overseen by a federal agency, that would set safety standards and verify audits for the most advanced AI models.
Google says such a body could be modeled on existing regulators such as the Financial Industry Regulatory Authority and the North American Electric Reliability Corporation.
Google frames the proposals as a “middle way” between over-regulation and no regulation, separating rules for frontier models from policies for AI that is more widely deployed.
On everyday uses, Google argues that “if something is illegal to do without AI, it’s illegal to do with AI,” and that existing laws can be adapted rather than rewritten.
Google is itself a defendant in a copyright case over AI training on music.
A group of independent artists sued the company in March, alleging it trained its Lyria 3 music-generation model on copyrighted recordings pulled from YouTube without permission.
Google has moved to dismiss the case, arguing the artists licensed their music when they agreed to YouTube‘s terms of service.Music Business Worldwide
This Gold-Standard Forecaster Predicted 4.2% Inflation Months Before the Fed. Here’s What They Think Is Coming Next for U.S. Investors.
It’s easy to make predictions. Making correct predictions, on the other hand, is a lot harder.
One economic forecaster successfully predicted our current 4.2% inflation rate months ahead of time, well before even the Federal Reserve caught up.
Now that same gold-standard forecaster has issued updated predictions about what investors can expect in 2026 and beyond. Here’s what they said, and why we had better hope they’re wrong.
Image source: Getty Images.
A proven winner
The forecaster is the Organization for Economic Cooperation and Development (OECD). It’s an international agency that collects and standardizes economic data. It also provides policy analysis and what have often turned out to be eerily accurate economic projections. Small wonder that the U.S. State Department calls the OECD “one of the world’s largest and most reliable sources of statistical, economic, and social data.”
The OECD’s prediction of 4.2% inflation this year in the U.S. was an outlier when it came out in March. The Fed was only forecasting 2.7% inflation at the time. In early April, I said investors should pay attention to the OECD’s 4.2% forecast. If it was correct, I predicted:
You could almost certainly kiss any Fed interest rate cuts goodbye until at least 2027, as taming the runaway inflation would outweigh most other economic concerns. That would likely have a negative impact on the S&P 500 (^GSPC +1.18%), which is already reeling from rising energy costs.
Just last week, new Fed Chair Kevin Warsh essentially kissed any interest rate cuts goodbye until at least 2027, and the S&P 500 promptly dropped 1.6%. Sometimes I hate being right.
Well, earlier this month, the OECD released its updated mid-year economic outlook, and investors should definitely pay attention this time around.
Two possible scenarios
The first thing the OECD notes in its June Economic Outlook is, “The conflict in the Middle East has become the dominant force” on the global economy.
But the scope and duration of the conflict is still uncertain, which led the OECD to consider two possible scenarios. One is a “time-limited disruption” scenario, in which the situation is resolved quickly with no lasting impact on global commerce, such as tolls or closures in the Strait of Hormuz. The other is a “prolonged disruption” scenario, in which disruptions last “well into 2027” with longer-lasting consequences.
Image source: Getty Images.
Under the “time-limited” scenario, U.S. inflation is expected to come in at 3.7% for the year. That’s lower than May’s 4.2%, but don’t be misled. The 4.2% figure means that in May 2026, prices were 4.2% more expensive than in May 2025. But those same May 2026 prices are only 2.5% more expensive than they were in December 2025. The OECD’s 3.7% forecast is predicting that December 2026 prices will be 3.7% more expensive than in December 2025, meaning that even under this more optimistic scenario, we should expect an additional 1.2 percentage points of inflation by the end of the year.
The “prolonged” scenario is much worse.
Long-term pain
In the “prolonged” scenario, 2026 inflation rises to 4.1%, meaning we’d see an additional 1.6 percentage points of inflation between now and December. Then, 2027 inflation would rise to 4.2%. In other words, we’d have two years of 4%-plus inflation, led primarily by higher energy prices. That wouldn’t be good for the U.S. economy or the stock market.
The OECD notes that the U.S. economy was resilient in early 2026 “despite a succession of adverse shocks, including higher tariffs, tighter immigration policies, and a contraction in the federal workforce.” Therefore, GDP growth is still expected under the “time-limited” scenario, although at an anemic 2% in 2026 and 1.8% in 2027.
But under the “prolonged” scenario, GDP growth drops to 1.4% in 2026 and just 0.6% in 2027. That kind of weak growth could lead to other problems, like mass layoffs, lower business capital investment, and rising debt levels.
The takeaway here is that investors should keep abreast of how events in the Middle East are unfolding, since they will have the largest impact on the market’s near-term performance. If no progress appears to be made toward a resolution, investors may want to prioritize investments that thrive in a lower-growth environment. However, trying to sell and time the market is a bad idea, since history shows that investors who stay in the stock market nearly always come out on top.
Servicing costs per loan climb as policy shifts bite
Total direct operational costs in servicing, a subcomponent of total expenses, increased by a few dollars per loan compared to last year as mortgage companies contended with policy change.
Processing Content
Systems and customer service at $36 and $33 per loan, respectively, accounted for the two largest categories of direct expense, followed by executive management and specialized functions at $21.
Claims and foreclosures, and costs involved in handling setups, transfers or payoffs each added $9 to direct operational expenses in servicing last year. Quality assurance and record-keeping each added another $6 to costs, while specialized loans added $3.
What drove costs higher
Respondents to the benchmarking study attributed the increase in total costs over 2024 to factors that include:
The majority or 75% of the costs came from expenses outside of functions connected with default, according to the MBA, which included customer service, executive management, escrow and loss draft processing, and set-ups payoffs and transfers in that category.
Default related functions like collections, loss mit, bankruptcy and foreclosure accounted for the remaining costs.
Costs have played a role in recent
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Conversations with Frank Fabozzi, CFA, Featuring Francesco Fabozzi
In this episode of Conversations with Frank Fabozzi, CFA, Francesco Fabozzi explores how large language models are transforming investment workflows, from discretionary research and quantitative strategies to portfolio construction and governance. He discusses where AI creates value, the risks firms must manage, and why the future of investing will depend on combining domain expertise with AI-driven insights.
Key Discussion Points
- AI beyond automation: Why discretionary investors may benefit more than large systematic firms
- From sentiment to return prediction: How language models extract investment signals from unstructured data
- AI in quantitative investing: Creating new predictive factors and enhancing research efficiency
- Model risk and governance: Managing hallucinations, evaluation frameworks, and AI oversight
- The next frontier—portfolio construction: Moving beyond stock selection toward AI-informed portfolio decisions
- Building differentiated investment processes: Why domain expertise, proprietary knowledge, and investment philosophy still matter in an AI-driven world
Your Talent Strategy Has to Keep Up with Your AI Transformation
“Julie,” the CHRO of a mid-sized media organization, made a decision she called “practically unavoidable.” Facing board pressure to cut costs and show ROI on AI investments, she eliminated her firm’s 200-person analyst associate program—the entry-level cohort that had, for decades, been the company’s primary pipeline for mid-level talent. The savings were immediate. The consequences were not.
Donate $10 To St. Jude’s For Free With Paze Promo (Domino’s Checkout; Possible Tax Write-Off)
The banks are offering a free $10 ten times when checking out with Paze. Chase is also offering 10x Ultimate Rewards points bonus for Paze transactions.
One of the eligible merchants is Domino’s which is useful for getting nearly free pizza and the like.
It’s under the Extras menu, so you don’t need to add anything else to your cart. Just choose store pickup first (carry out), then update the quantity to 10 (it’s easier to update the quantity on the initial screen), then check out with Paze. It shows the $10 clearly on the Paze checkout screen.
This is useful for someone who wants to do some good in the world. It can also be a potential tax write off. You’ll have a receipt of the donation in your email.
- As always please consult your own tax advisor for all tax matters.
Starting in 2026, even those who don’t itemize deductions can get a charity deduction of up to $1,000 for a single or $2,000 for a couple. See our post, IRS: Standard Deduction Filers Can Deduct $1,000-$2,000 In Charitable Donations (Begins 2026).
I’ll probably use the rest of the Paze credits for the St. Jude’s donation since aren’t really many options left that I’m interested in.
Hat tip to readers Gia and Oscar