Expenses in the Year after Graduation

jimperry926 2018-07-31 16:17:24 UTC #1

My son graduated last December, but had to rent his apartment for the entire academic year (August 2017 through July 2018). He paid $500 per month in rent, including $3500 (7 months x $500) in 2018. Is it possible to use 529 funds to pay for this year's rent?

dcandmc 2018-07-31 21:26:17 UTC #2

Generally, you can use 529 funds for anything you want. The question should be, is the rental expense incurred after your son graduated a qualified expense?

I would say no, because your son was not enrolled at least half-time during the seven months in 2018 that he paid rent. That means that tax would be owed on the earnings portion of any 529 funds used to pay the rent in January through July this year, plus a 10% additional tax (unless an exception to paying the 10% additional tax applies).

mark 2018-08-01 16:58:47 UTC #3

I would like to clarify this a bit. Let's say child is a senior, it's his second year of living off campus and the lease goes from July 1 to June 30. School starts the last week of August.
1) Would July's rent be qualified? Sounds like no because the Junior year ended in May.
2) Would August's rent be qualified? I would guess yes, but maybe the answer is only a pro-rated amount.
3) Would December or January rent be qualified? I guess same answer as (2) where it's a partial month of school.
4) Would June (last month of lease) be qualified? I guess same answer as (1) where it's a month without school.

dcandmc 2018-08-01 17:58:56 UTC #4

How do the 529 distributions in 2017 compare to the school's Cost of Attendance (CoA) figures for academic periods in 2017, based on your son's living situation?

Aside from textbooks, required course materials and computer equipment, did the 529 2017 distributions equal the 2017 CoA as published by the school for your son's living situation? If so, then you're done, and any further distributions will be assessed tax (and likely the 10% additional tax as well) on the earnings portion of a distribution, because there are no more qualified expenses to pay. If the 2017 529 distributions fell short of the 2017 CoA figures for your son's living situation, why did that happen?