I have what I believe to be an unusual situation. I am in graduate school in Indiana, a state that offers a 20% tax incentive on contributions to a 529 (max $5000 contribution/year). I am in Biology where most of the tuition and cost is waived in lieu of me teaching or bringing in grant money to cover the costs. Thus, the only other qualified expenses I've had are books, fees, internet, etc. I did not have the 529 account before starting my degree but just opened it as a way to pass money through to pay the costs I'm incurring and get the state tax incentive. I have two young children so I figured if I end up with leftover money in the account, I can change the beneficiary to one of them.
Well I only contribute about $1500 a year; I make very little with my stipend so I only put in what I need to cover the qualified costs.
One qualified cost that I hadn't considered is room and board. I have a mortgage off-campus and off-campus housing is qualified, as long as you don't exceed the amount that the school would charge you if you were on campus. In my case, the mortgage is half as much as it would cost to live in the University Apartments with a family. However, if I could move money to my 529 and reimburse my mortgage costs for the year, I would hit the $5000 contribution limit and maximize the state tax incentive. I couldn't find much information online about this type of situation other than parents (account owners) buying houses and charging their kids (beneficiaries) rent to live there, making the expense qualified because the beneficiary incurs the cost. In my case, I am the account owner and the beneficiary. What makes this unusual is that most PhD students aren't buying houses but given the low cost of living here and the 5-6 year term of my degree, it made much more sense than renting or living on campus. Plus, I had already built equity in a prior house that I had to use as a down payment.
Does anyone see any flaws in this proposition?