529 Plans

C

Clark Rogers

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Nov 2, 2016
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My son has been fortunate enough to receive an appointment to the USNA class of '21. Just curious if anyone knows the rules pertaining to utilizing 529 funds for miscellaneous expenses associated with the academy.
 
they may not be the right kind of expenses. 529 withdrawals need to equal or be less than the 1098 form you get from the school.
i do not know if SAs send out 1098s.
there is a provision to withdraw an amount equal to scholarships but I am not sure that applies either as it is not a scholarship per se.
worst case you would pay the penalty, still cheaper than tuition.
Or you could transfer the money to a siblings 529.
 
Each year, we have been withdrawing one quarter of the total amount of the 529 in two installments, one in February and one in August. We use some of the funds to top off his Roth IRA and to pay his airfare to/from WP. Some of the leftover will be given to him after graduation (to pay off that cow loan?).
 
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Congratulations on your DS's appointment. As a Plebe your DS will be taking out a 0% interest ACE loan to cover all of the uniforms, etc. that will be issued. USNA keeps most of the monthly pay in "held pay" for a few years to cover the loan and by the time a Mid graduates the loan is paid. You'll be able to use some of the 529 plan money to pay against his ACE loan. I believe the allowable number last year was $17,500, but don't quote me on this. He won't see any more money in monthly pay as a Plebe, but in later years as held pay is released he will end up with more since a good chunk of the loan will have been covered by the 529 funds. If you have more money in the 529 plan than IRS allows to use against the ACE loan, you could save it in case DS wants to pursue a masters later on or save it for another family member.
 
General cautionary thoughts for posters and lurkers, don't do anything irreversible with the 529, in case your DS or DD leaves the SA, voluntarily or involuntarily, or until you are confident he/she is going to stick it out.

We observed one situation with a USNA sponsor daughter, rather upsetting to see. DD1 was a promising athlete and scholar, parents scrimped and saved to send her to expensive boarding prep school with prominent team in her sport. Mom took a second job. DD1 is recruited by and accepts USNA appointment. Parents divert DD1 529 to one-year younger DD2 to help fund expensive college out of state. DD2 is not a stand-out scholar or athlete, stayed home to attend public HS. DD1 decides to leave USNA after 1 year. Parents say DD1 got her share of the family money support for her HS boarding prep, and told her she was now on her own for living arrangements and college funds. DD1 went to live with one of her boarding school coaches, got herself into a state school with various grants and athletic scholarships, got a campus job, and did it all on her own as an emancipated adult. An extreme case with sad family dynamics, but the parents were a bit too invested in the USNA thing, and DD1 was blinded by the SA low-cost option, and parental pressure, and did not attend for the right reasons.

The only takeaway here is that mids and cadets do leave SAs, for reasons voluntary and involuntary, and it could be your DD or DS, no matter how rosy things are now. Life happens.
 
@Capt MJ's advice above is a good reason to withdraw in "tuition" increments and not use those funds for any other purpose than cadet/mid support until after graduation.
 
Capt MJ said:
General cautionary thoughts for posters and lurkers, don't do anything irreversible with the 529, in case your DS or DD leaves the SA, voluntarily or involuntarily, or until you are confident he/she is going to stick it out.

We observed one situation with a USNA sponsor daughter, rather upsetting to see. DD1 was a promising athlete and scholar, parents scrimped and saved to send her to expensive boarding prep school with prominent team in her sport. Mom took a second job. DD1 is recruited by and accepts USNA appointment. Parents divert DD1 529 to one-year younger DD2 to help fund expensive college out of state. DD2 is not a stand-out scholar or athlete, stayed home to attend public HS. DD1 decides to leave USNA after 1 year. Parents say DD1 got her share of the family money support for her HS boarding prep, and told her she was now on her own for living arrangements and college funds. DD1 went to live with one of her boarding school coaches, got herself into a state school with various grants and athletic scholarships, got a campus job, and did it all on her own as an emancipated adult. An extreme case with sad family dynamics, but the parents were a bit too invested in the USNA thing, and DD1 was blinded by the SA low-cost option, and parental pressure, and did not attend for the right reasons.

The only takeaway here is that mids and cadets do leave SAs, for reasons voluntary and involuntary, and it could be your DD or DS, no matter how rosy things are now. Life happens.
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Unusual but interesting situation. If 529 funds were transferred to sibling's account, can they be transferred back in the future? Or is that irreversible?
 
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