529 Plan

Discussion in 'Air Force Academy - USAFA' started by dsc18, Dec 31, 2010.

  1. dsc18

    dsc18 New Member

    Joined:
    Dec 27, 2009
    Messages:
    9
    Likes Received:
    0
    I was wondering if anybody has had any experience using their 529 plan to cover items and food that would normally be deducted from your pay. I assume I would go speak with my AMTs to get the ball rolling with this.
     
  2. bandit

    bandit Member

    Joined:
    Apr 30, 2010
    Messages:
    183
    Likes Received:
    0
    there is never food deducted from your pay.

    As for using your 529.

    Keep in mind. That while there are some expenses that would be qualified expenses at the USAFA, the USAFA itself is not a qualified educational institution in the eyes of 529 plans and the IRS. Therefore, you cannot use funds from a 529 plan tax free.

    you can withdraw funds and use them, really for anything you want, but you will be taxed on the earnings portion.

    the next part about how to actually pay back the USAFA for the items is an issue that I cannot help you with as they did things differently with my son back in 2007 than they do now.

    But most importantly, keep in mind that when you withdraw those funds, you will get a 1099-Q and have to pay tax on the earnings portion.
     
  3. californiakid

    californiakid New Member

    Joined:
    Jan 1, 2011
    Messages:
    9
    Likes Received:
    0
    529 Plans

    I'm glad this question came up as I was wondering about 529 Plan funds. I know they can be transferred to a sibling if a child gains acceptance to a SA. However, I assumed there would be penalties, in addition to paying taxes, on funds that cannot be used for educational expenses.

    However, I looked up the rules and here is what it states about unused funds for students who receives scholarships. I assume a SA Academy education falls under this rule.

    "If the child gets a scholarship, any unused money can be withdrawn without paying any penalty (just the tax)."
     
  4. bandit

    bandit Member

    Joined:
    Apr 30, 2010
    Messages:
    183
    Likes Received:
    0
    Actually, that rule doesn't apply to SA. But there is a special exemption that was passed at some point that results in the same outcome.

    The SAs are not considered a qualifying educational institution and there is no "scholarship" involved.
     
  5. lotsofbooks

    lotsofbooks Member

    Joined:
    Nov 1, 2008
    Messages:
    17
    Likes Received:
    0
    My d. graduated in 09, and we encouraged her to get going on her Masters so she can use her 529 college money. The AF gives her tuition assistance, but the books are quite expensive and she uses this money to pay for the books. (she's attending grad school in the evenings) She was also looking at some online classes that she might need as prerequisites that she could use her college money for. Evidently the tuition assistance doesn't always pay for every type of class.

    I would say that she was more eager to get going on her advanced degree as she knew she had this money that needed to be used for education. Many of her friends aren't really so gung ho about grad school. It's tough having to go to school after work, plus get the homework done, but you know, it's better now than later. I vote to save the money for grad school.
     
  6. marciemi

    marciemi USMA Alumnus

    Joined:
    Feb 5, 2009
    Messages:
    1,481
    Likes Received:
    0
    Here's some good information from last year, directly from the USAFA site - this first link is from last January's newsletter, and explains some of the information about 529's, COE (Cost of Education) and taxes:

    http://www.usafa.edu/superintendent/cma/newsletters/2010/10 Jan.pdf

    The next newsletter gives the budget for this year with approximate expenses. Per our financial advisor, any items they need to pay that would be considered justified as part of their "college expense", can be withdrawn (and justified) to a 529 plan, without paying taxes on them. We've talked with our 529 plan advisors as well, and they agree with the same. So we've been withdrawing money for our son and providing documentation, using the budget as a guideline, for items such as uniforms (a big one!), computer, textbooks, etc. to free up some of the money for him now without paying penalties or taxes. Definitely read all this carefully and talk to your own advisor and 529 folks, because things may vary between areas/plans. I spoke several times with the finance people at AF, who have told me they simply provide the budget for you to use with your plan, but they offer no recommendations, because plans can be different. The budget link:

    http://www.usafa.edu/superintendent/cma/newsletters/2010/10 Jun.pdf
     
  7. mmb5

    mmb5 Member

    Joined:
    Sep 1, 2009
    Messages:
    321
    Likes Received:
    11
    Thank you, Marciemi, this is extremely helpful. We had heard that we could use the 529 account for son's $2000 deposit at USMA, and did so successfully - easy directed withdrawal sent to the treasurer's office - but did not know of this exemption, which runs contrary to most of the tax advice we've been getting. Appreciate it!
     

Share This Page