While they make up the lion’s share of the costs, tuition is not the only expense college students incur. Students (or parents who are helping to pay for college) will also need to consider ancillary costs like books, meal plans, travel, and extracurricular activities.
It might come as a surprise, but textbooks can be a hefty expense. According to College Board, the average estimated cost of books and supplies was $1,250 for students of public four-year programs for the 2017-18 school year.
Students who live on campus are often required to purchase a meal plan. During the 2016-17 school year, four-year public institutions charged students an average of $4,666 for board across the U.S. In Maryland, the average cost of board was $4,964. According to the Bureau of Labor Statistics, the average cost of food for a single person was $4,425 for an entire year in 2017. When you consider that students are only in school for around eight months a year, and they are likely to raid their parent’s pantry and refrigerator during the summer and holidays, feeding a college student can get expensive.
Travel can also be costly, especially if the student is attending an out-of-state university. They’ll need to factor in the cost of moving, as well as the cost of traveling back home, all while considering it’ll be more expensive during school breaks such as Thanksgiving and Christmas. In-state students will still need to account for the cost of public transportation or the cost of auto insurance, gas, and a parking pass if they have their own vehicle.
Socializing is an important aspect of college life, but it doesn’t come cheap. Sports teams and other clubs will all have yearly fees. Membership fees for fraternities and sororities can run into the thousands, but varies from chapter to chapter. For example, the membership fees for University of Maryland students ranged from $325 to $1,150 per semester in 2017.
Saving for college expenses
With these inevitable costs starting to stack up, you’ll want to put a savings plan in place to help fund these expenses. A 529 plan allows you to save for your child’s college costs, while also providing tax benefits. One of the benefits of a 529 plan is that withdrawals are not taxed at a federal level if the money is used for the qualified education expenses of the designated beneficiary.
So what exactly is a qualified education expense?
Most of the qualified expenses are ones you might expect, such as tuition, room and board if the student is attending college part-time or more, computer equipment, books, and services for students with special needs.
However, travel expenses, cell phones, sports and gym memberships, health insurance, and student loan repayments are not included as they are not considered educational expenses. This applies even if the school is the one billing for these expenses. Fraternity/Sorority fees are also not qualified expenses, with the exception of the portion that covers room and board.
It’s important to note that qualified expenses cannot exceed the cost estimates set by the school. For example, if the student’s rent exceeds the school’s estimate, the excess is not considered a qualified expense.
Making the most of your 529
Using your 529 to pay for excluded expenses can lead to penalties. Avoid these penalties by researching which expenses qualify before you withdraw the funds.
Planning ahead will ensure that you maximize the tax benefits. You might also be eligible for tax credits such as the American Opportunity Tax Credit and the Lifetime Learning Credit, but you can’t use these credits for the same expenses that 529 assets are used for. Consider seeking financial advice to avoid making costly mistakes.
Let the CERTIFIED FINANCIAL PLANNER™ professionals at Williams Asset Management help with your wealth management needs. Whether you need comprehensive and holistic financial planning or investment management, we can help! We are fee-based, independent financial advisors located in Columbia, the heart of Howard County, Maryland. Schedule your complimentary consultation today by calling (410) 740-0220!
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