529 expenses

texdad2023

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Oct 22, 2022
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Hello,

We have some money in my DS's 529 plan. Not a lot. We would like to transfer to our daughter who is 13. Can we use part of it to pay for their uniforms? That way he doesn't get docked any money? Are there any expenses other than the uniforms that midshipmen/cadets get charged?

Thanks
 
I can’t speak to the 529. I was an ill prepared parent and didn’t have one for DS.

They are charged life insurance if they elect it, laundry, tailor, barber, cobbler, Lucky Bag (yearbook), and athletic fee (attendance to non mandatory athletic competitions) if I recall correctly.

The Ace loan includes their laptop, monitor, and printer and a huge amount of other uniform items issued as they need them over their four years. Think que tips, athlete foot cream, underwear, paper clips, push pins, everything from razors to PT gear, shoes, dress uniforms, parade dress, the list goes on. They will get really good at folding it all and stowing it.

Prior threads on this subject are many. While I believe you can apply a lump sum to their Ace loan, I don’t believe their monthly stipend will be bigger as a plebe. The monthly stipend increases with privileges each year and the Ace loan is paid off via a structured repayment plan.
 
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Hello,

We have some money in my DS's 529 plan. Not a lot. We would like to transfer to our daughter who is 13. Can we use part of it to pay for their uniforms? That way he doesn't get docked any money? Are there any expenses other than the uniforms that midshipmen/cadets get charged?

Thanks
Here is a handy link to how the mid money works. It gets updated every year, but doesn’t change much.

 
Hello,

We have some money in my DS's 529 plan. Not a lot. We would like to transfer to our daughter who is 13. Can we use part of it to pay for their uniforms? That way he doesn't get docked any money? Are there any expenses other than the uniforms that midshipmen/cadets get charged?

Thanks
Make sure you read all the fine print and do the math for your situation. There is guidance whether any money from 529s for SAs are taxable. They are exempt from the penalty, thanks to a specific carveout. We elected to keep ours stewing as-is until either Mid Sib needs it ( to avoid taxes) or let DS decide whether to hold it for grandkids, etc.

There is also a new xfer rule passed last year that starts in 24(?), where you can transfer some money from an "unused" 529 into their Roth. It has to be within the annual limits, in for a certain length, and only to that beneficiary.
 
Hello,

We have some money in my DS's 529 plan. Not a lot. We would like to transfer to our daughter who is 13. Can we use part of it to pay for their uniforms? That way he doesn't get docked any money? Are there any expenses other than the uniforms that midshipmen/cadets get charged?

Thanks

I was curious about this also and found this info from the guide posted in this thread:

d. Midshipmen may apply outside funding that is intended to subsidize educational expenses to the repayment oftheir ACE loans and future uniform and textbookissues. The estimated average ofa midshipman's gear issue and purchases, over the four years is approximately $17,500. Authorized
funds include personal checks, public and private scholarships, and college savings plans such as state 529 plans. All checks should be accompanied by letters stating the intended application of the funds
and any limitations to their usage. Any scholarship funds exceeding the costs of the ACE Loan and future issued items will be returned to the funds' source. Funds for the incoming class of 2025 should not be sent prior to the start of their first academic year. This allows for pay accounts to be built.
e. All outside funding intended to subsidize educational expenses should be made payable to "USNA" and mailed to the following address:
United States Naval Academy Midshipmen Disbursing Office
101 Buchanan Road, Room 4002 Annapolis, MD 21402
 
Hello,

We have some money in my DS's 529 plan. Not a lot. We would like to transfer to our daughter who is 13. Can we use part of it to pay for their uniforms? That way he doesn't get docked any money? Are there any expenses other than the uniforms that midshipmen/cadets get charged?

Thanks
An over-arching comment, assuming you are a plebe parent: Your Mid will receive the same ‘pay’ as every other Mid. Your donations via 529’s won’t ‘increase their paycheck’ so to speak. The idea being that everyone is the same. If you want to supplement their bank accounts, sending money directly to them is the best way to go.

We also have small amounts in 529’s. Initially we were not releasing to them until they signed their 2/7’s. And now, with new tax laws, we are dumping them into their Roths, as mentioned by @justme.

Primary source info provided already, will show how 529’s are applied.
 
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Prior threads on this subject are many. While I believe you can apply a lump sum to their Ace loan, I don’t believe their monthly stipend will be bigger as a plebe. The monthly stipend increases with privileges each year and the Ace loan is paid off via a structured repayment plan.
It is correct that their monthly net pay will not change BUT there will be a dollar for dollar increase in the size of their midshipman account "payout" that happens when they graduate or otherwise separate.
Yes, the government in this case USNA holds their money in an oft mysterious account which mids of my era called their "funny money" but that account gets closed when they leave USNA and they get the remainder. Thus, if scholarships, 529's or other funds payoff their uniforms instead of a loan from the government then the individual's account will be higher when it is closed out.
 
We paid the full $17,500 from our 529 to our mid's account during his youngster year. The school uses it to first pay off whatever part of his initial uniform loan is still unpaid. Once that happens, the loan repayment is no longer taken out of their monthly pay, so they do make a little more than other mids until those are paid off--usually beginning of 2/c year. After that, while it doesn't increase his regular monthly pay, he still gets it. A few times (maybe 3?) times a year, the USNA disbursing office disburses money to the mids called "held pay." This is a certain amount of money that the office holds out of their paycheck for additional expenses that the mids may accrue--like books, football tickets, who knows what else. Whatever is not used is distributed during one of those held pay payments up to $750 per payment. Most mids get maybe $200 or so, though firsties generally end up with more and plebes generally get very little. Held pay feels like Christmas. Since we gave our son's account the money, he gets the max $750 for each of those scheduled dispersals. He can also go into the dispersing office and request an individual dispersal once a month. So if he remembers to go in and fill out the paperwork, he gets the $750 each month in addition to his pay. I'm not sure how early you can start requesting disbursements--maybe not as a plebe? Any money still left over in the account will get paid out at graduation.

I'm not sure if I think this is the greatest way to do it (especially now with the roth option) since you're entrusting a bunch of your hard-earned money to a kid who may not appreciate its value, but it turned out we had more in our 529 than we were going to need and didn't want to pay a tax penalty on it. We made an agreement with him that he would save the majority of the money toward a down payment on a house (or equivalent) and not go on wild spending sprees as a mid.
 
A thread about this came up previously someone with tax expertise commented that you won't have to pay the early withdraw penalty but you may taxes on the capital gains. Consult your tax advisor is all I'll say.
 
We paid the full $17,500 from our 529 to our mid's account during his youngster year. The school uses it to first pay off whatever part of his initial uniform loan is still unpaid. Once that happens, the loan repayment is no longer taken out of their monthly pay, so they do make a little more than other mids until those are paid off--usually beginning of 2/c year. After that, while it doesn't increase his regular monthly pay, he still gets it. A few times (maybe 3?) times a year, the USNA disbursing office disburses money to the mids called "held pay." This is a certain amount of money that the office holds out of their paycheck for additional expenses that the mids may accrue--like books, football tickets, who knows what else. Whatever is not used is distributed during one of those held pay payments up to $750 per payment. Most mids get maybe $200 or so, though firsties generally end up with more and plebes generally get very little. Held pay feels like Christmas. Since we gave our son's account the money, he gets the max $750 for each of those scheduled dispersals. He can also go into the dispersing office and request an individual dispersal once a month. So if he remembers to go in and fill out the paperwork, he gets the $750 each month in addition to his pay. I'm not sure how early you can start requesting disbursements--maybe not as a plebe? Any money still left over in the account will get paid out at graduation.

I'm not sure if I think this is the greatest way to do it (especially now with the roth option) since you're entrusting a bunch of your hard-earned money to a kid who may not appreciate its value, but it turned out we had more in our 529 than we were going to need and didn't want to pay a tax penalty on it. We made an agreement with him that he would save the majority of the money toward a down payment on a house (or equivalent) and not go on wild spending sprees as a mid.
thank you for the explanation on this - we keep trying to decide whether to do this but I was going to wait till 2 for 7 is signed. great info for sure and I had no idea about the Roth IRA option - I like that idea for sure - I need to talk to my accountant about that! the other option is save it for if she wants to go to grad school later or for her own kids.
 
Most financial planners and CPA's will not be familiar with how 529's are treated for cadets, mids, ROTC scholarship recipients. The link below is a good article written with a focus on military members.


If you financial planner is unfamiliar with the exemptions for cadets/mids - refer them to the Military Family Tax Relief Act of 2003 which has been amended to now allow for contributions to the cadet/mid' Roth.
 
Here is a handy link to how the mid money works. It gets updated every year, but doesn’t change much.

I'd like to think that I am a smart person. I didn't understand any of that. What I got is that you get about 1200 a month, you will owe about 17,500, but yet you will only get a small amount each month to spend? Does anyone have any real life examples of how much money you have when you leave?
 
I'd like to think that I am a smart person. I didn't understand any of that. What I got is that you get about 1200 a month, you will owe about 17,500, but yet you will only get a small amount each month to spend? Does anyone have any real life examples of how much money you have when you leave?
If I had to guess I'd say the amount they'd leave with will be 3-10K and that all depends on how much they're spending each month. In the first year the monthly take home is $125, then $225, about $100 more each month for 3rd and 4th years. During the first year my son spent more than his $125 so we happily supplemented his needs.

The 17,500 is for uniforms/computer but for books, that's an additional expense which can vary based on the classes they're taking and I assume some clubs/sports may have fees for travel?????
 
I'd like to think that I am a smart person. I didn't understand any of that. What I got is that you get about 1200 a month, you will owe about 17,500, but yet you will only get a small amount each month to spend? Does anyone have any real life examples of how much money you have when you leave?
Consider the $125, $225, $325, & $500 monthly pay as a simple draw on the actual income. Then, in July-Nov-Mar starting 3C year they reconcile a portion, making sure they 1) leave min amount for escrow and 2)pay no more than max allowed per month. The reconciliation includes taxes, fees, loan repayment, etc as per the spreadsheet example. Roughly, they should take home around 20k per those figures, with half of that the 1C year.
 
I'd like to think that I am a smart person. I didn't understand any of that. What I got is that you get about 1200 a month, you will owe about 17,500, but yet you will only get a small amount each month to spend? Does anyone have any real life examples of how much money you have when you leave?
I fully admit when I was a BattO I spent a lot of time with Midshipman Disbursing Officer trying to understand all the nuances of mid pay. It is nothing like the reasonably straightforward pay of an active duty officer.
 
Another thought is rather than turn the money over to USNA - have the 529 plan write the check directly to the Mid. As long as the Mid can produce the receipt for the IRS, the $ has been utilized for tax free purposes.

If you were at a 'normal' college and purchased textbooks, you could pay for them with 529 funds. You don't ask for the 529 funds up front to make the purchase. You would purchase the books and request your 529 plan to make a distribution. They will. The IRS may then at a later date ask if it was a qualified distribution and as long as you have the receipt - you are golden.

This takes the USNA disbursement office out of the loop and your Mid can get the $.

As always - speak to a qualified financial advisor before doing anything. Getting financial advice off an anonymous message board no matter how well intentioned is unlikely to make you wealthy.
 
This is take from an article in Forbes. Somethings to consider when planning for us of 529 funds.

“Starting in 2024, holders of 529 plans will be able to roll their balance into Roth IRA’s tax and penalty-free,” says Brian Heckert, past president at Million Dollar Round Table and principal at FSM Wealth in Nashville, Illinois. “There is a $35,000 lifetime cap on transfers to a Roth. Rollovers are subject to the annual Roth IRA contribution limit. (The limit is $6,500 in 2023.) The rollover can only be made to the beneficiary’s Roth IRA—not that of the account owner. For example, a 529 owned by a parent with the child as beneficiary would need to be rolled into the child’s IRA, not the parent’s. A bigger issue is that the 529 account must have been open for at least 15 years, and the accountholders can’t roll contributions, or even earnings on those contributions, made in the last five years. This may make the process a bit trickier.”
 
Great info, we shoveled a ton of money away for both our kids and are using a CPA in AZ to help us avoid as much taxes as possible. Good problems to have I guess. Meet the CPA this week to plan out this years strategy.
 
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