BrightSide
Member
- Joined
- Feb 14, 2020
- Messages
- 58
Thank you! I will try to remember to re-post on here when that is communicated for future reference.
It would seem as though the guidance is really lacking in this area and after reviewing the information, it would seem that most are guessing.I have read many posts on various Academy sites but am curious whether anyone has completely withdrawn their cadet's 529 funds while they can. Apparently there is no penalty for doing so if the cadet has received a full scholarship. Why would anyone do so? Our financial advisor recommended we consider doing so before the law changes and disallows a full withdrawal without penalty.
TIA.
It would seem as though the guidance is really lacking in this area and after reviewing the information, it would seem that most are guessing.
Who can someone recommend that these questions can be referred to?
https://www.irs.gov/pub/irs-pdf/p970.pdf Link to sourcehttps://www.savingforcollege.com/ar...contributions-from-a-529-plan-without-penalty
Exceptions to the penalty
In some cases, the 10% penalty on non-qualified distribution is waived, but the earnings portion of the distribution is still subject to ordinary income tax. These exceptions include:
- When the 529 plan beneficiary dies or becomes disabled
- When the beneficiary receives a tax-free scholarship
- When the beneficiary receives educational assistance through a qualifying employer program
- When the beneficiary attends a U.S. Military Academy
- The qualified education expenses were used to justify another federal education tax benefit, such as the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Tax Credit
I have not researched the underlying law for this, but it is the same information I received from my CPA.
@Stealth_81, How is the cost communicated? Meaning, is there a document? Thanks
Thank you for this. We have gone back and forth trying to decide whether to do this. This is helpful info.After reading this thread, other threads, the USNA 20/21 Budget Book and several other sources, I've compiled my notes into a set of bullets that I'm posting here, in hopes that it will help some of you, and others may correct me:
I looked into paying off the ACE loan ($8500) and "future issued items" ($9000) with 529 Plan funds and here is what I found:
So, it makes the most sense to request the $17,500 distribution from the 529 plan in August 2024 (start of senior year), after your ACE loan is paid off.
- It is acceptable, easy, and standard to get a distribution of $17,500 from your 529 plan to pay off the ACE loan and future costs (See p. 1 of the 2020/21 Budget Book.)
- USNA can/will accept the 529 Plan $s up to graduation day
- Paying off the ACE loan won't change your End of Month pay until November of your sophomore year
- The ACE loan is a 0% interest loan (p. 1)
- The repayments of your ACE loan are deducted from your Held Pay, not your monthly pay.
- It isn't until November of your 3/C year that there is a release from your Held Pay to your bank account. (p. 2)
- The amount released depends on how much you have in your Held Pay (p. 7)
- The more money in your Held Pay, the more money is released (but they don't release all of it)
- See pp 13 and 15 in the Budget Book
- The cost of any "future issued items" comes out of your Held Pay, also (p. 1)
- So, if we pay $9K to USNA for these, then it goes into your Held Pay, not your monthly pay
- Every November, February, and July you get additional cash from your Held Pay in the form of Mass Held Pay (see p 3 of your Budget Book)
- The remainder of any Held Pay will be disbursed to you upon graduation. (p. 3)
- If you leave USNA for any reason before your ACE loan is repaid, then you don't have to reimburse USNA for any amount you still owe
- You are taxed on the amount forgiven as income (p. 7)
- The ACE loan is paid off in August before your senior year (p. 11)
If you need money sooner, the soonest that you will get any of it will be in November of your sophomore year.
- No matter when the 529 distribution is added to your Held Pay, you won't receive any of it until November of your sophomore year
- Then will only receive part of it
- Waiting until senior year maximizes the amount of time that the 529 investment can grow
- The ACE loan is a 0% loan, so no benefit to paying off early
- If you pay it off early, you will lose free money if you separate for any reason before your senior year
My understanding is that whether or not you send it to the academy or give it to your DS/DD as a straight withdrawal, the DS/DD will have to pay the taxes on the gains in the 529 account. The additional 10% is waived regardless.After reading this thread, other threads, the USNA 20/21 Budget Book and several other sources, I've compiled my notes into a set of bullets that I'm posting here, in hopes that it will help some of you, and others may correct me:
I looked into paying off the ACE loan ($8500) and "future issued items" ($9000) with 529 Plan funds and here is what I found:
So, it makes the most sense to request the $17,500 distribution from the 529 plan in August 2024 (start of senior year), after your ACE loan is paid off.
- It is acceptable, easy, and standard to get a distribution of $17,500 from your 529 plan to pay off the ACE loan and future costs (See p. 1 of the 2020/21 Budget Book.)
- USNA can/will accept the 529 Plan $s up to graduation day
- Paying off the ACE loan won't change your End of Month pay until November of your sophomore year
- The ACE loan is a 0% interest loan (p. 1)
- The repayments of your ACE loan are deducted from your Held Pay, not your monthly pay.
- It isn't until November of your 3/C year that there is a release from your Held Pay to your bank account. (p. 2)
- The amount released depends on how much you have in your Held Pay (p. 7)
- The more money in your Held Pay, the more money is released (but they don't release all of it)
- See pp 13 and 15 in the Budget Book
- The cost of any "future issued items" comes out of your Held Pay, also (p. 1)
- So, if we pay $9K to USNA for these, then it goes into your Held Pay, not your monthly pay
- Every November, February, and July you get additional cash from your Held Pay in the form of Mass Held Pay (see p 3 of your Budget Book)
- The remainder of any Held Pay will be disbursed to you upon graduation. (p. 3)
- If you leave USNA for any reason before your ACE loan is repaid, then you don't have to reimburse USNA for any amount you still owe
- You are taxed on the amount forgiven as income (p. 7)
- The ACE loan is paid off in August before your senior year (p. 11)
If you need money sooner, the soonest that you will get any of it will be in November of your sophomore year.
- No matter when the 529 distribution is added to your Held Pay, you won't receive any of it until November of your sophomore year
- Then will only receive part of it
- Waiting until senior year maximizes the amount of time that the 529 investment can grow
- The ACE loan is a 0% loan, so no benefit to paying off early
- If you pay it off early, you will lose free money if you separate for any reason before your senior year
Minus taxes on the gain, you may use the money as you see fit. We did not use any of it for education. For us, it funded early(er) retirement.So my question would be why even send any of the money to USNA?
Our plan at this point is to withdraw 1/4 of the balance each year and first, fully fund a Roth IRA for $6k or whatever the limit is now, and then the rest can just go into standard stock accounts/bank accounts.
Would be curious of your thoughts on that?
Yep, my take too, and my son has his plan. Was more wondering if there is really any benefit to running it through USNA? It doesn't seem so to me.Minus taxes on the gain, you may use the money as you see fit.
So there is no penalty for taking the money out of the 529 since they are at USNA except for paying taxes on the gain?Minus taxes on the gain, you may use the money as you see fit. We did not use any of it for education. For us, it funded early(er) retirement.
Correct. But as always consult your tax professional. and read the others posts about allowed amount.So there is no penalty for taking the money out of the 529 since they are at USNA except for paying taxes on the gain?