529 disbursement recipient

[ElleLDL]

College expenses were paid to the university out of the parents bank account. It is now the end of the year and we plan to pull money out of the 529 plan to be reimbursed for these expenses. For tax purposes, does it matter if the disbursement is made to the account owner (parent) or beneficiary (student)? 

[Bsch4477]

Most plans allow you to request a disbursement to yourself as the account owner, to the beneficiary, or directly to the school. A few plans allow withdrawals to other entities, so check with your 529 provider if you’d prefer the withdrawal be made to a third-party. a) Account owner – The benefit here is control over the disbursement. The drawback is that the IRS often sends notices of penalty when the resulting 1099-Q is sent to the account owner, requiring you substantiate the expenses and go through the hassle of proving they were qualified. So it is generally best to avoid the administrative headache that can come with making withdrawals to yourself unless you are also the student. b) The beneficiary – The benefit of making a 529 withdrawal to the student is that it avoids generating a 1099-Q to you (assuming the owner is not also the beneficiary). Plus, if you accidentally withdraw too much, the student is usually in the lower tax bracket. The drawback is that the student gets the money, meaning there is nothing stopping them from taking an impulse trip to Fiji instead of the bursar’s office.c) The school – Having tuition go directly to the institution can make things a lot easier administratively. Some 529 plans have set it up so you can make payments directly from your account to the institution. It also makes it easier to time the payment to coincide with the year of the bill, as well. However, if the student is receiving financial aid from their institution, it is possible that payments made from a 529 plan can be misperceived by the school as scholarship funding, reducing their aid from the school.

[Hal_Al]

Q.  For tax purposes, does it matter if the disbursement is made to the account owner (parent) or beneficiary (student)? 

A. No. All that matters is that there were offsetting expenses, in the same year. It doesn't matter who paid it.  

[BDL3]

My question is in reference to off campus Room and Board.  Specifically for the Room part of the topic.

Since my Student is renting an apartment off campus because the school my student is attending does not offer any kind of Room and Board.  Is the Rental Application Fees (Parents Cosigining and Student will be the tenant) to acquire rental considered a Qualified Expense since it was a necessary expense to acquire "Room"?    How about Security Deposit Fees which was also necessary to acquire "Room"?   Note: The rental manager mentioned that we won't get security deposit back, because it was considered cost to prep the "Room" for the next renters once our lease was up.

[Hal_Al · Accepted solution]

Q.   Is the Rental Application Fees (Parents Cosigining and Student will be the tenant) to acquire rental considered a Qualified Expense since it was a necessary expense to acquire "Room"? 

A. Yes. It's part of the "room" cost.

Q. How about Security Deposit Fees which was also necessary to acquire "Room"?   Note: The rental manager mentioned that we won't get security deposit back, because it was considered cost to prep the "Room" for the next renters once our lease was up.

A. Normally no, since you usually get it back.  In your case, you know you won't get it back, so yes.

But, the amount you can claim is limited to the lower of your  actual cost or the school's "allowance" for room and board.  See the discussion at the other tread you're following.  https://ttlc.intuit.com/community/college-education/discussion/re-is-eating-out-considered-board-exp...