529

[UHBlackhawk]

Yeah, I know they've been discussed but when I do a search I get an error as "529" is too short.

I understand the earnings portion of the 529 is treated as normal income if withdrawn in full for someone attending a service academy.
We are having our 2021 DD withdraw the money in 2018 as this will probably be the year with her lowest tax liability for some time. 2017 she had her enlisted pay, so we held off. DS is going to be a 2022, so no need to transfer it to him.

Is there any requirement as to where this money should be deposited? Does it have to go into her Cadet account or can she just deposit it in her checking account?

 

[AROTC-dad]

The IRS doesn't care which account it gets deposited, so long as it is in her name as beneficiary of the 529. They only care that a 1099-Q will be issued to either the beneficiary (DD) or the owner (you), and what the funds are used for.

 

[Soldiergriz]

@AROTC-dad

I fully understand the 1099-Q going to son. That piece is easy.

But, since the money will be taxed only on the earnings, and free of penalty why does the IRS care what the funds are used for?

I plan on making a withdrawal with tax liability going to son, and using it to apply to his cadet account. This is allowed correct?

 

[AROTC-dad]

You are correct, Grizz! In your case (and Blackhawk's), the IRS does NOT care what the funds are used for as whatever it is spent on, it cannot be considered qualified higher education expenses (QHEE).

I was making a general statement about what the IRS looks for on ALL 529 withdrawals. In doing so, I just confused the matter.

Sorry for the confusion, Griz!

 

[jebdad]

UHBlackhawk - In case you had not already thought about this, it may not be a bad idea to wait until 2022 has affirmed. Unless you have the same situation with 2022's 529 and would have enough money saved to cover their college expenses with their specific balance alone.