Son has off-campus apartment lease for apartment near campus. Aug 1 to July 31 but graduates mid-May. He has no reason to rent apartment other than school and in fact must rent off campus apartment since college doesn’t have enough dorm rooms for all upperclassmen. Rent is paid monthly. I’m trying to figure out if June and July rent after graduation will be a qualified 529 withdrawal. Maybe if I pay rent in advance before graduation? My understanding is a qualified withdrawal for off campus housing is the lesser of actual cost of rent or the amount college estimates for financial aid.
I’m nit a 529 expert…but I’m having trouble figuring out how rent for someone who is NOT in college would be considered a QEE.
^ This.I think the only way around it is to pay up front.
But even if you pay in advance…you are paying for a period of time when the student will have already graduated college.
@BelknapPoint opinion??
This is one of those gray areas in 529 rules (there are more than a few). Your interpretation of qualified student housing expense is a bit off. Here’s what the IRS says:
The expense for room and board qualifies only to the extent that it isn’t more than the greater of the following two amounts.
a. The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
b. The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
The safest thing would be to use the 529 to only pay for rent up until graduation, following the rule above. If your son will have use for any left over 529 money down the road (i.e. graduate school), or if the money can be used by a younger sibling, this is what I would recommend. The next safest thing would be to use 529 money to prepay the June and July rent before graduation, but like I said, this is a gray area. As long as you don’t exceed the amount as determined by the rule above, it’s not likely that the IRS would take notice, but if for some reason they do, there may be a question about 529 money paying for housing during a period that your son is no longer enrolled at least half-time at an eligible educational institution.
My nephew’s lease is for the year, payable in a lump sum in August! The landlord gives the ‘option’ of paying monthly (but there is a service charge) just in case the college students don’t have $45,000 on hand to pay it in August (there are 4 of them splitting it, not $45000 each). No different really than paying the dorm fee all at once in September, and even if you drop out and don’t use the dorm in Nov, you’ve already paid for it with your 529 money.
Paying for the lease all at once with 529 money might be cheaper, depending on the service fee for paying monthly and the return on the 529 account.
Also the lease usually runs for a full year, but educational period might only be 8-9 months, how is that handled in all the years they attend school?
If you use the greater of the amounts that college estimates for R&B in COA, for 529 reimbursement, wouldn’t that more than cover the rent for the year? It doesn’t say that you can only use actual amount of rent paid.
That depends on how much the rent is, as compared to the R&B allowance in the COA.
Yes, of course the rent could in fact be higher, but most people seem to move off campus to save money.
Of course in OP’s case there was not enough on campus housing so if it’s an expensive city it might well be more expensive to live off campus.
My nephew’s apartment is definitely more than the dorms. Expensive college town and dorms are really only for freshmen. I assume the COA for upperclassmen takes that expensive rent into consideration.
Thanks for the responses! A year’s lease is equal to the college’s estimate of room COA for an academic year so that part works. He’s the youngest, doesn’t want to go to graduate school, and will have leftover $ no matter what so would like to take qualified withdrawals any way I can. I think a lot of students would have this issue so surprised it isn’t clarified by IRS.