Looking at my daughters 529 balance and thinking we will have “money leftover” after the next two years of tuition. She is in an off campus apartment this year, sophomore year, and will remain there for the next three years. We have been paying her rent just with cash flow but thinking it may be smart to split it in the middle.
I have read a little about using 529 Funds, and that the college sets the Off campus COA and you can use up to that amount.
Has anyone else done this and can advise a bit on the process? Send funds to yourself to pay rent?
I have a friend who does this. He pays rent monthly for his son’s off campus apartment from his bank account, and then withdraws twice a year from his 529. It needs to be within the COA published by the school.
I’ve had this situation for several 529 plans where I am the account owner.
You can pay yourself or pay your student and have your student pay the rent. Just keep good records so in the unlikely event you are audited, you would be able to show proof that the 529 withdrawals are used for qualified 529 expenses.
Good practice is to make the withdrawals in the same tax year as the year the corresponding expenses are actually paid.
So good (and safe from an audit perspective) practice is to make withdrawals in the same tax year as the year the corresponding expenses are actually paid.
Same here, we just pull out the schools listed COA. If your child should ever fall below a half time student, you are not allowed to use 529 funds for housing.
I agree with all this; there is nothing I know of in the IRC or IRS regulations that explicitly says 529 distributions must be done in the same year that their corresponding qualified expenses are paid. However, their are several examples in IRS publications that imply that things must or should be done this way. So, to be safe, it’s a good idea for that and other reasons to withdraw from the 529 and spend that money for qualified expenses in the same year.
In my experience with state-sponsored 529 plans in two different states, the plan administrator just asks on the online form whether the withdrawal you are taking is qualified or non-qualified. They don’t distinguish between room and board within the qualified higher education expense category. So (at least in these states) you could lump room and board into a single distribution, rather than processing separate transactions for each.
Correct, the 1098-T from the school is only going to show tuition paid (plus possibly including some mandatory student fees in addition to the base tuition) in box 1. You’ll also receive a 1099-Q from the 529 plan showing total distributions during the year. These numbers are most likely not going to match, even if your student lives on campus housing, as the 1098-T amount does not include room, board, and other 529 qualified expenses.
Unless you’ve taken a (taxable) non-qualified distribution from the 529, neither of these numbers appears anywhere on your tax return and there’s no supporting documentation to be filed. Just retain the forms along with your supporting documents (tuition bills, rent payments, etc.) in a file so that in the event you’re ever questioned by the IRS, you have the appropriate backup.