I paid a security deposit for my daughter's off campus apartment. This apartment is for next school year (2025) Can I use 529 funds to cover now or wait until 2025?

[Bsch4477]

529 distributions are only qualified (tax-free) if they are taken in the same calendar year you paid for the qualified expense.

[Hal_Al]

As @Bsch4477  said, 529 distributions are only qualified (tax-free) if they are taken in the same calendar year you paid for the qualified expense.  So, you cannot take a distribution in 2025 to cover an expense you actually paid in 2024, even if the expense is associated with attendance in 2025. 

Q. So, the question is can you use a 2024 529 distribution if you made a payment, in 2024, for an expense associated with attendance in 2025?

A. Yes, if the student was enrolled as a student in 2024, even if she did not actually take any classes. 

"Qualified Higher Education Expenses (for a 529 Plan distribution)are expenses related to enrollment or attendance at an eligible postsecondary school. Some of the expenses must be required by the school and some must be incurred by students who are enrolled at least half-time, defined later. (Publication 970, page 50)".

 Pub 970 makes the following statement regarding the tuition credits: "Generally, the credit is allowed for adjusted qualified education expenses paid in 2024 for an academic period beginning in 2024 or beginning in the first 3 months of 2025".  You won't find the same wording regarding 529 distributions.  But, you could assume the same rule applies. 

[rjs]

As I see it, the security deposit is exactly that - a deposit. The landlord is holding it, but it's still your money. You haven't spent it. You will presumably get the deposit back when your daughter moves out (unless she trashes the apartment). If you are able to use the security deposit to pay the last month's rent at the end of the lease, then you are paying it at that time, not now. So I don't think you can use money from the 529 to pay a deposit that you are eventually going to get back.

@Bsch4477  @Hal_Al  What do you think?

In some states or cities landlords have to pay interest on security deposits. In that case you have interest income that you have to report on your tax return. You might get a Form 1099-INT for the interest.

[Bsch4477]

@rjs raises an interesting point. I suppose you could use the funds to pay the deposit realizing that it would be taxable income to the extent it was paid back. This was discussed previously here. 

https://ttlc.intuit.com/community/college-education/discussion/paid-security-deposit-and-1st-months-...

[Hal_Al]

I agree with @rjs , if the money will eventually be refunded, you cannot use 529 plan money to cover the deposit.  If the money is applied to the first month rent, then you can count it (e.g. it was a "hold" deposit rather than a traditional security deposit).