Financials

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OiledPancakes

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A few questions about financials. I am an incoming plebe and I want to get everything in order before I leave (for the most part):

Navy Federal or USAA

Roth IRA and 401k: This is more general knowledge than service academies but there are a lot of smart people on this forum. How do IRA work exactly? Should I max it out every year? I am fortunate to have a great 529. Can I use this on my IRA and 401k? Is there anything else that a 529 may be useful for for a MID instead of contributing it to investments?

I want to start investing and make sure I’m making the most of having “free college.”

Thank you for anyone who has experience with this.
 
Lots of threads and good discussion on NFCU and USAA. You might start with a quick search and then ask whatever additional questions you might have.
 
OiledPancakes said:
A few questions about financials. I am an incoming plebe and I want to get everything in order before I leave (for the most part):

Navy Federal or USAA

Roth IRA and 401k: This is more general knowledge than service academies but there are a lot of smart people on this forum. How do IRA work exactly? Should I max it out every year? I am fortunate to have a great 529. Can I use this on my IRA and 401k? Is there anything else that a 529 may be useful for for a MID instead of contributing it to investments?

I want to start investing and make sure I’m making the most of having “free college.”

Thank you for anyone who has experience with this.
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@usna1985 has the best suggestion, search on SAFs:

529 plan funds options

Would appreciate any experience/guidance others may have We‘ve saved a reasonable sum in 529 plan that we would like to use for DS’s educational expenses at WP. This would allow for tax minimization while maintaining original purpose. As a hypothetical, our understanding would be (apologies...
www.serviceacademyforums.com

I believe you will be given information near the end of plebe summer on how to use any 529 monies along with scholarship monies at the USNA, so look out for that info when it comes.

529 is not considered scholarship money.

The Naval Academy isn't considered a traditional qualified educational expense by the IRS for 529 plans. So, using funds for it would be considered a non-qualified withdrawal so it is not as simple as telling your state 529 to send X amount of $$s to the academy. You may have to withdraw the money and take the tax hit on any gains. If I am not mistaken the max you can contribute to your USNA ACE? account is $30K. No limit to adding to your private bank account.
 
You should never take investment advice on an on-line forum, except for this time...

All three of my kids, including my now-Ensign, opened and make monthly contributions to Roth accounts. You are most almost guaranteed to currently being in the lowest tax bracket that you will ever be in for the rest of your life, so the pre-tax dollars saved in an IRA will not be all that beneficial vs the Roth benefits. Any growth in the Roth will be tax free for the rest of your life (unless Congress screws that up in the future...You never know).

My kids put in $100/month in each of their accounts. S&P Index funds. While it's never a bad thing to max out contributions, you need to save for a lot more than just retirement at this point in your life. Time is on your side. Start small, but start! My kids are very happy that they listened to their daddy.
 
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I believe that you can apply the 529 funds to your initial Mid loan and reap the additional monthly income as a result. That may vary by state and you should seek relevant guidance.
 
FutureAcademyDad? said:
I believe that you can apply the 529 funds to your initial Mid loan and reap the additional monthly income as a result. That may vary by state and you should seek relevant guidance.
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I’m realizing I don’t really understand any of this. What exactly is a Mid loan?
 
OiledPancakes said:
I’m realizing I don’t really understand any of this. What exactly is a Mid loan?
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Start your research at the link below, the annually updated Midshipman Budget.


Every mid gets a whole much of stuff on arrival at USNA. That cost is covered by a small loan, the ACE loan, that is automatically repaid from midshipman pay. Some scholarship funds can be applied to that loan to reduce the amount taken out of pay automatucslly.
 
Don't worry, you will soon have 4,000+ certified financial planners who will give you all the free advice you could ever wish for. ;)

(And I'm only joking a little bit. It's like a mini-Wall St. on the Yard).
 
Good advice to do a search. People are missing that your primary goal in your original post was to get the money out of your 529. Depending on the actual size of your 529, you will do regular withdrawals that are qualified and unqualified, as well as rollovers to a Roth IRA. Your research will find that there is a bunch of debate from amateurs and professionals on what is or isn’t a qualified expense in relation to your 529.

Your course of action will probably be most served by having a tax professional advise you.
 
Currently, the kid has been getting about $250/month in held pay distribution on top of the $300/month for 3/C. He said that has been most of this year, which he certainly appreciates!
 
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