Well there an older forum thread on this but since we are in the same boat now I figured I would ask around hoping someone out there is a CPA or tax atty Background: SAs are not 'Qualified' institutions for 529 withdrawals but are exempt from 10% penalty. You take money out, pay taxes on the investment gains, no penalty. Income is reported on your kid's income [1099Q] and taxed at their bracket rate [lower than yours usually.] We have ~$40K in DS' 529; he is appointed to SA and is youngest so no sibling to roll over to. I think the best case is to stop contributions and withdraw 1/4 of the account value during each calendar year he will be at SA prior to commissioning. [enroll 2017, finish 2021 so withdraw '17 - '20.] His tax bracket will never be lower before commissioning so this seems to make the most sense. We will use the $$ to cover uniform / computer etc etc costs at SA; what is left I will put in his nest egg account for his service years. Anyone else looking at this?