Can we use our child's 529 to pay rent to our RE LLC?

[Blair Carney]

We are a year away from having our son start college. We are thinking about buying a 3-4 bedroom place where he would live and we'd rent the other bedrooms.  After he graduates, we'd rent out the whole thing.  This would be our first investment property.

Can I use money from his college saving account (a 529) to pay rent to the LLC we establish to own the property?

Am I thinking about this wrong? If I own the property, do we need to pay rent for our son? 

The 529 was established well before we were thinking about getting into real estate investing, so we're wondering about how best to use that money combined with investing. Don't want a bunch of money left in the 529 when he's done with school.

[Chris T.]

@Blair Carney - I will start off that I am neither a CPA or Tax Professional

My plan for my children is the same. From my research, yes, you are able to use 529 funds to pay for off campus housing. Whether that is to a LLC that you own or a 3rd party landlord/company.

There are some guidelines you will would want to follow....

- Yes, your son will need to pay rent.  That is how you are able to use the 529 funds.

- The rent paid with 529 funds can not exceed the published housing costs that each university posts (they typically list On campus and Off campus housing costs).  

- Treat your son and any other tenants equal and as if they were any other tenant (sign a lease, equal rents, etc).  You need to be able to show that you are not trying to evade anything if you were to ever be audited.

- I'd have the house owned or at least "managed" by an LLC to whom the rent is paid. That again prevents the appearance of you paying yourself.

Again, I'd have a conversation with your tax professional, but that is the understanding that I have.