Maximize 529 - First/Last month's rent

[leegulch]

We are trying to use the 529 we set up for our daughter as much as possible to pay for college and eligible expenses.  She just started her first semester of living off campus.  The cost of living in her city is pretty high, so we are expecting her rent and food costs to come very close to the maximum Cost of Attendance numbers listed by the school. Housing is very tight there, so in order to ensure her apartment for next year (June 2025-2026), she needs to sign a lease this month (Oct 2024) and put down 1st/last month's rent now.

I know that 529 distributions need to be taken in the same year as the expense is paid.  However, as stated earlier, claiming the advance rent now will probably put us over the COA max for 2024.  Given that the rent will not actually be realized until 2025 and 2026, is there any way to legally work around this so that we can use the 529 to pay for the rent or are we just stuck with paying two months of rent out of pocket and not getting the tax advantage?

[Hal_Al · Accepted solution]

Q. Is there any way to legally work around this so that we can use the 529 to pay for the rent or are we just stuck with paying two months of rent out of pocket and  not getting the tax break.

A.  You're stuck with not getting the tax break. As you said, the distribution must match the payment year and not exceed the "cost of attendance" allowance.

[leegulch]

Thanks for chiming in and confirming.

This feels dumb to me.  Seems like the IRS should allow a way to recognize the expense as a legit 2025 expense or at least allow you to delay the distribution.  I personally know multiple families with kids at various schools that have to sign leases 9 months in advance in order to lock down reasonable housing.  Next time the IRS Batphone rings, can you please relay my frustration? 😀