I was wondering if anyone has put a set of 20x8.5 inch rims on a TJ magna sports with everything else on it standard. Will the 8.5 inch rim rub on the gaurds with 245x35x20 tyres? and will they stick out of the gaurds?

It all depends on offset. Get the wrong offset and it won't fit/will rub heaps, but get the right offset and you should be fine.

I believe most aftermarket rims for Magnas are around the +35/+38 offset. It shouldn't stick out the guards.