Our son is an appointee in the class of 2014. Prior to his appointment, we saved some money for him in a Section 529 college savings plan. Does anyone have any ideas on how that money can now be used to help him since it won't be needed for tuition, etc.? Thanks.
Cadets & College Savings Plans (529 Plans)
- Thread starter tomjoni
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Christcorp
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The best thing is if you have other kids. You can transfer it to them. If you want to spend it on your son, I recommend you speak with an accountant or those you set up the account with. There's a lot of tax implications that occur depending on the amount you have saved and where you use it. This is something you really shouldn't decide based on internet forum advice.
FWIW: With the exception of possibly plane tickets back home, there's not a lot that your cadet has to have for money. Spending money is good, but by their 2nd year they're going to be getting around $800 a month. What we did: Our daughter got a full ride scholarship to the University. Being it didn't cost us anything for school, we figured we'd give here around $200 a month for spending money. This way she wouldn't need to look for a part time job for spending money. We continued the practice on when our son got accepted to the academy. We figured he received a full ride scholarship, so we did for him the same as his sister. We give him $200 a month for spending money. (Actually, we give him half at the beginning of the school year, and the other half at christmas break). Now, whether you can get this money from your education fund or if you need to shuffle money around for tax purposes is what you need to figure out. If you have another child, that's the easiest. Then, you just transfer the account to them, and the money you were going to put into an account for them, you can route to your cadet. But again, speak to an accountant or the financial adviser who set up the account. Later... mike....
FWIW: With the exception of possibly plane tickets back home, there's not a lot that your cadet has to have for money. Spending money is good, but by their 2nd year they're going to be getting around $800 a month. What we did: Our daughter got a full ride scholarship to the University. Being it didn't cost us anything for school, we figured we'd give here around $200 a month for spending money. This way she wouldn't need to look for a part time job for spending money. We continued the practice on when our son got accepted to the academy. We figured he received a full ride scholarship, so we did for him the same as his sister. We give him $200 a month for spending money. (Actually, we give him half at the beginning of the school year, and the other half at christmas break). Now, whether you can get this money from your education fund or if you need to shuffle money around for tax purposes is what you need to figure out. If you have another child, that's the easiest. Then, you just transfer the account to them, and the money you were going to put into an account for them, you can route to your cadet. But again, speak to an accountant or the financial adviser who set up the account. Later... mike....
Luigi59
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US CODE TITLE 37 > CHAPTER 3 > § 203
(c) A cadet at the United States Military Academy, the United States Air Force Academy, or the Coast Guard Academy, or a midshipman at the United States Naval Academy, is entitled to monthly cadet pay, or midshipman pay, at the monthly rate equal to 35 percent of the basic pay of a commissioned officer in the pay grade O–1 with less than two years of service.
(2010 O–1 with less than two years of service = $2,745.00
2,745 x .35 = $960.75 gross pay per month)
(c) A cadet at the United States Military Academy, the United States Air Force Academy, or the Coast Guard Academy, or a midshipman at the United States Naval Academy, is entitled to monthly cadet pay, or midshipman pay, at the monthly rate equal to 35 percent of the basic pay of a commissioned officer in the pay grade O–1 with less than two years of service.
(2010 O–1 with less than two years of service = $2,745.00
2,745 x .35 = $960.75 gross pay per month)
Attending a service academy is one of two circumstances you can make a non-qualified withdrawal that is not subject to the federal penalty tax:
if the beneficiary receives a scholarship or attends a US Military Academy, you can withdraw up to amount of the scholarship or the costs of an advanced education at a US Military Academy (as defined by Title 10 USCS Section 2005(e)(3)).
The earnings portion of the withdrawal will still be subject to any other applicable taxes, including federal income tax.
We did not make any changes or withdrawals until after the start of the 2 dig (junior) year.
if the beneficiary receives a scholarship or attends a US Military Academy, you can withdraw up to amount of the scholarship or the costs of an advanced education at a US Military Academy (as defined by Title 10 USCS Section 2005(e)(3)).
The earnings portion of the withdrawal will still be subject to any other applicable taxes, including federal income tax.
We did not make any changes or withdrawals until after the start of the 2 dig (junior) year.
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tomjoni - we've been looking into this a lot since although we do have other kids, the money came from the grandparents and they are adamant that it not be transfered to anyone else (ie they want all the grandkids treated equally). We've tried to explain that we would transfer it and give him the money some other way, but they are not willing to compromise (thinking we're trying to "rip off" our son by doing this). 
We've been talking to a financial advisor quite a bit and what Gasdoc said is correct. You can withdraw annually (calendar year, not academic) up to the Cost of Education (COE) for each year, which in past years has been around $40,000. This money can be withdrawn for any use, WITHOUT paying the 10 percent penalty for "non-educational" use normally associated with it. However...you still are responsible for paying taxes on the earnings portion. So if you invested $40K and it was now worth $48K, you'd pay taxes on the $8K, but not the 10 percent penalty. Sounds like you can get around some of this (this is per our tax advisor) by doing the whole itemized thing like you would at a regular college - they can submit through your own 529 receipts for books, travel, uniforms, computer - of course it's up to the individual 529 program to accept/deny the claims.
When I was at Orientation I spoke with the finance officers for about a half hour about this. They said that most cadets submit their LES (leave and earnings statement) directly to the 529 and take that money out as they go, without paying any penalty or taxes. However, obviously if you've saved $100,000, they're not going to get to that amount - so at some point they'd either need to transfer it to a sibling, save it for grad school, or pay the tax (not penalty) on it. They did tell me though that they do NOT get involved in any of it other than to provide receipts as needed. And warned me to have my son be sure to always ask for one if he did anything on his own (replaced a uniform, bought books after first semester, etc.). It all has to be handled through your advisor and your 529 plan. I have already warned my son that if he wants any money he needs to be sending me every LES and every receipt!
Here is a link to an information article regarding taxes from the USAFA website that gives more detailed information, on page 4:
http://www.usafa.edu/superintendent/cma/newsletters/2010/10 Jan.pdf
We've been talking to a financial advisor quite a bit and what Gasdoc said is correct. You can withdraw annually (calendar year, not academic) up to the Cost of Education (COE) for each year, which in past years has been around $40,000. This money can be withdrawn for any use, WITHOUT paying the 10 percent penalty for "non-educational" use normally associated with it. However...you still are responsible for paying taxes on the earnings portion. So if you invested $40K and it was now worth $48K, you'd pay taxes on the $8K, but not the 10 percent penalty. Sounds like you can get around some of this (this is per our tax advisor) by doing the whole itemized thing like you would at a regular college - they can submit through your own 529 receipts for books, travel, uniforms, computer - of course it's up to the individual 529 program to accept/deny the claims.
When I was at Orientation I spoke with the finance officers for about a half hour about this. They said that most cadets submit their LES (leave and earnings statement) directly to the 529 and take that money out as they go, without paying any penalty or taxes. However, obviously if you've saved $100,000, they're not going to get to that amount - so at some point they'd either need to transfer it to a sibling, save it for grad school, or pay the tax (not penalty) on it. They did tell me though that they do NOT get involved in any of it other than to provide receipts as needed. And warned me to have my son be sure to always ask for one if he did anything on his own (replaced a uniform, bought books after first semester, etc.). It all has to be handled through your advisor and your 529 plan. I have already warned my son that if he wants any money he needs to be sending me every LES and every receipt!
Here is a link to an information article regarding taxes from the USAFA website that gives more detailed information, on page 4:
http://www.usafa.edu/superintendent/cma/newsletters/2010/10 Jan.pdf
Christcorp
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gasdoc; that is very good advice about waiting until the 3rd year. Cadets can quit anytime up until then. And you might want to use it for their civilian school if their plans changed.
Luigi, thanks for posting the actual link to pay. I was simply providing the ball park after tax pay that the cadets will be getting. But it's good to know the exact gross pay. Good info.
Luigi, thanks for posting the actual link to pay. I was simply providing the ball park after tax pay that the cadets will be getting. But it's good to know the exact gross pay. Good info.
greentrees
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Our son's 529 allows travel expenses to/from to count as education expense, so, he buys the plane ticket on his credit card, gets the 529 to reimburse him (and pays off the credit card the day after it gets deposited in his checking account), then saves the receipt for the plane ticket and claims it as an education expense. Of course his 529 didn't have that much money in it as it was started late and when we knew he wanted academy we stopped investing in it and put $$ elsewhere.