529 Plans and SAs

Shaka

Member
Joined
Dec 20, 2018
Messages
63
Doing some research today on what we can do with the 529 plan for our DS and thought I would share this information with the forum. This is from www.savingforcollege.com

"What happens if you've been saving with a 529 plan?
While attending a service academy may be a tradition for some families, there are also parents who are surprised when their child expresses an interest in a military career. What happens if those families have been diligently saving for college with a 529 plan but now there is a good chance that they won’t need the money? There are actually a couple of options. First, if there is a younger sibling that is planning to attend college you can simply change the beneficiary of the account. If not, you can still withdraw the funds and avoid the 10% penalty tax, thanks to the Military Family Tax Relief Act of 2003 which provides that attendance at a U.S. military academy will be treated as a scholarship for purposes of non-qualified withdrawals from a 529 plan. However, like a scholarship, the earnings portion of the account will be taxable.

Similar to an athletic scholarship, thousands apply to military academies but only a select number are accepted. While you may have your heart set on your child attending West Point, saving with a 529 plan in the meantime might be a safe bet."
 

parentalunit2

10-Year Member
Joined
Apr 18, 2010
Messages
662
In addition to changing the beneficiary to a sibling, you can let it ride for grad school, or let it ride for a future grandchild.
 

ETM

New Member
Joined
Feb 4, 2021
Messages
9
This question keeps coming up and finding a needle in a haystack seems to be much more fruitful.

There is a lot of ignorance out there. We spoke to the custodians of our daughter's 529 plan and they insist that we can't withdraw the money without incurring the penalty.

USNA does not provide parents with an estimate of value. With the rules that you can only withdraw each year an amount equal to the value of the education, this is something that we need just in case we win the audit lottery.

Also related is that individuals have reported in forums that the ACE loan is a qualified expense and not to pay until the end of 2/C year. However, all the tax guidance says that you need to withdraw for only the year in which the expense incurred.

It is also recommended that the beneficiary is the one to receive the disbursement. Do such disbursements then make one ineligible for the Start Up loan? Is it really such a good idea to give her the entirety of the funds? (She wasn't serious about attending until she got her appointment.)

Another concern is that all the tax guidance says that expenses must be incurred at an eligible institutions (be on the FASPA list). None of the military academies are on that list, hence the Military Family Tax Relief Act of 2003.
 
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