529 funds

Huursoldaat

USNA 2026 Dad
Joined
Nov 16, 2021
Messages
310
This has probably been discussed before, but the Forum search doesn't allow a search for "529". :mad:

How have folks handled 529 money they had saved when their child decided to attend a SA? I've heard you can use some of the money to pay for initial expenses (uniforms, computer, etc.).
I'm also pretty sure you can withdraw money against a scholarship. Does anybody know the value of a SA scholarship (USNA for my son if that is important).
 
This has probably been discussed before, but the Forum search doesn't allow a search for "529". :mad:

How have folks handled 529 money they had saved when their child decided to attend a SA? I've heard you can use some of the money to pay for initial expenses (uniforms, computer, etc.).
I'm also pretty sure you can withdraw money against a scholarship. Does anybody know the value of a SA scholarship (USNA for my son if that is important).
There are usually a few threads a year here in that topic, and one relatively recently.

Try an external search on Google:

“site:www.serviceacademyforums.com 529 plan college savings plan”
 
Try some of these:





 
I see I need to leave the SAF front door and let google do the magic.
Thanks I will read over those links.
 
I'll throw out some cautionary advice...

Be careful pulling the money out too early, you never know what will happen. For instance, DD is thriving at USAFA and loves it there. However they found some bizarre medical concerns that may prevent her from staying and not something we were aware of at all. She's still going through the process and we'll see what happen, but we are just grateful that money in the 529 is still sitting there for use if needed.

Spouse had a good friend at USCGA get into a skiing accident and had injured himself and needed to leave for the last 2 years. Cadets leave for a multitude of reasons and anything can happen.
 
Yes definitely a good consideration to make sure you leave enough to handle a CIV college if that becomes necessary. I'd think SA credits would be transferable so drawing down equally each year seems to be a reasonable approach.
 
Thanks to his AROTC scholarship, my DS ended up with leftover 529 plan funds after graduating and commissioning . He is leaving it to compound tax free...hopefully for the education of our future grandchildren. (529 beneficiaries can be changed by the owner)
 
We are leaving ours in "just in case". And if it isnt needed for MID DS by commissioning, we will xfer to younger Midsib. This way we dont lose the tax amount by cashing out for SA.
 
This way we dont lose the tax amount by cashing out for SA.
Just to be clear, the Military Family Tax Relief Act of 2013 removes the penalty for withdrawing 529 funds for non-education purposes though you still pay taxes on capital gains, same as any other investment.
 
I'll throw out some cautionary advice...

Be careful pulling the money out too early, you never know what will happen. For instance, DD is thriving at USAFA and loves it there. However they found some bizarre medical concerns that may prevent her from staying and not something we were aware of at all. She's still going through the process and we'll see what happen, but we are just grateful that money in the 529 is still sitting there for use if needed.

Spouse had a good friend at USCGA get into a skiing accident and had injured himself and needed to leave for the last 2 years. Cadets leave for a multitude of reasons and anything can happen.
From my research, I have found that if a cadet does leave a service academy they can be considered independent for FAFSA purposes at a traditional university and depending on what their assets/income are, I would imagine it quite likely they would qualify for significant federal grants.
 
Recent development from Secure ACT 2.0 as of Dec 2022, can convert qualifying 529 to Roth IRA starting in 2024. Check if yours qualify:

Lots of news articles such as:

 
Recent development from Secure ACT 2.0 as of Dec 2022, can convert qualifying 529 to Roth IRA starting in 2024. Check if yours qualify:

Lots of news articles such as:

Thanks for the update! The minimum of 15 year old accounts (or older) is a barrier. We may have to wait until well after DD graduates the USNA before we can rollover 529 funds to a Roth.
 
Thanks for the update! The minimum of 15 year old accounts (or older) is a barrier. We may have to wait until well after DD graduates the USNA before we can rollover 529 funds to a Roth.
In theory, that makes more sense anyway. Let them fund it when their tax bracket is low, and then convert the 529 once their income is higher. The funds should grow at a somewhat similar rate.
 
Thanks for the update! The minimum of 15 year old accounts (or older) is a barrier. We may have to wait until well after DD graduates the USNA before we can rollover 529 funds to a Roth.
You can still do it now as long as they have taxable income. DD did this and her tax penalty was minimal… as was her income as a Cadet.
 
We kept 529 for DS graduate school or for future grandchildren - can't beat the returns on a tax free investment.
 
Good info. We stopped funding the kid at USAFA once he started and are using a CPA to best determine how to avoid taxes on that 529 plan or just sit on it or see if the other spawn needs it.
 
I am USMA Class of 2026. My parents had a 529 set up for me. You can withdraw all funds from your 529 without penalty when your child attends a service academy. We just recently withdrew everything, here's what we did with it:

1. Put as much as possible into your cadet's Roth IRA. Max it out. This is huge.
2. Put a significant portion of the rest into a fixed-rate CD. I did a USAA 9-month CD and will likely reinvest all of it back into another when those 9 months are over
3. Keep a little bit for travel costs.

Of course, the exact details are for you to work out with your cadet but I think this is a good model. But if your cadet doesn't already have a Roth, set one up ASAP.
 
I am USMA Class of 2026. My parents had a 529 set up for me. You can withdraw all funds from your 529 without penalty when your child attends a service academy. We just recently withdrew everything, here's what we did with it:

1. Put as much as possible into your cadet's Roth IRA. Max it out. This is huge.
2. Put a significant portion of the rest into a fixed-rate CD. I did a USAA 9-month CD and will likely reinvest all of it back into another when those 9 months are over
3. Keep a little bit for travel costs.

Of course, the exact details are for you to work out with your cadet but I think this is a good model. But if your cadet doesn't already have a Roth, set one up ASAP.

I might be missing something, but why would you do #1? While penalty free, you still have to pay taxes. The new 529 rules supposedly allow for tax free conversions to Roth, as long as a few criteria is met. (starting in a couple years, age of roth, untouched for some time, max of annual roth input, etc)
 
I might be missing something, but why would you do #1? While penalty free, you still have to pay taxes. The new 529 rules supposedly allow for tax free conversions to Roth, as long as a few criteria is met. (starting in a couple years, age of roth, untouched for some time, max of annual roth input, etc)
Uuuuh a Roth isn't taxable. I'm confused about what you're saying.
 
Uuuuh a Roth isn't taxable. I'm confused about what you're saying.
My understanding... the 529 funds would be taxable if you take them out "for a SA". So, you would be re-investing that money in the Roth after paying tax on gains. If you convert the money directly from the 529 to the Roth, (the new rule starting next year) those gains go in tax free before and after. Both do the same thing, other than that one tax difference, and subject to same annual limits, etc.

I would love a tax expert to confirm/deny. That is how I read the articles about this. This is our current plan with DS' small 529. Converting in 10 years or so, once he gets to a point where he isnt maxing his own contribution to his roth.
 
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