Can you tell me what the approximate value of an education at the United States Naval Academy would be?
The number is going to be different depending on what the context is. So… what’s your context?
A girl from my daughter’s high school was heading to Navy. They announced the value at $480k, and that was 3 years ago. No idea how they valued it that way or if that included the pay she would receive.
Our salutatorian is going to Naval Academy and in her scholarships it said she earned $600k from them (our school shows off the amount of money each student received from colleges)
Let’s see. It might be the value of tuition, room, and board, without the benefit of an endowment (a tuition subsidy at other schools) plus the monthly stipend each Mid receives monthly for four years, plus pay during the summer programs.
I’m trying to figure out how much we can withdraw from our 529 without penalty
The 529 distribution that can be taken penalty free due to the beneficiary’s attendance at a U.S. military academy is based on the provisions found in section 2005(d)(3) of title 10 of the U.S. Code. Good luck with that.
Wait until your kid actually graduates. There are plenty of reasons why students don’t finish at the academies, and the 529 could come in real handy in one of those situations.
Ok…this is opinion only…you need to read the info on post 6.
All qualified education expenses…tuition fees, books…are covered by the military academies. They also cover room, board, and clothing…and I think just about all other expenses.
I’m not sure any 529 money can be withdrawn without penalty.
@ChoatieMom do you know the answer to this question?
A beneficiary’s attendance at a U.S. military academy is one of the cases in which the 10% penalty is not assessed for a non-qualified distribution. See IRS pub 970, pg. 60:
Thanks @BelknapPoint
Sounds like the OP can use this 529 money any way they choose…
But really… @happymomof1 makes a good point. Might be worth waiting at least a bit.
Also…are there other siblings who are going to attend college? Can’t the 529 be transferred for their use?
Any 529 account owner can use the money any way they choose, if they are willing to pay the income tax, and potentially the 10% penalty, on the earnings portion of a non-qualified distribution.
Is there a restriction on the withdrawal timing to receive the scholarship penalty waiver? In order to qualify for the waiver, does the withdrawal need to be made within a certain time frame (e.g. the year in which the scholarship was awarded) or can the account owner wait to see if further college expenses like grad school will use up the balance?
This is a good question and as far as I know there is no definitive IRS answer to it. I think it’s pretty safe to say that you don’t need to take the penalty-waived distribution in the same year that the scholarship is received, but I don’t know if the IRS will balk at the penalty waiver if a certain amount of time goes by between the beneficiary receiving the scholarship and taking a non-qualified distribution related to the scholarship. As always, keep all documentation so that if necessary you can show how a claim of a penalty waiver is related to a scholarship that was previously received.
Thanks @BelknapPoint! I will be in a similar situation to the OP, with a fully funded 529 and a kid with an almost full ride scholarship. He’s an only child and H and I aren’t planning to get any more degrees so we may end up with a big balance in the 529 and no other possible beneficiary.
Certainly a nice situation to be in. Remember, there is no requirement that a 529 balance be spent down at some point, so you can sit on the account for as long as you want, letting it continue to grow. If there are grandchildren in your future, what a potentially fantastic way to assist them and your son.
The Military Family Tax Relief act absolves families with children at the academies of the 10% penalty for non-education withdrawal, but you will still have to pay taxes on the gains. The act was implemented because the academies technically are not 529-qualified institutions. This topic is discussed often and in detail on the serviceacadeyforums.com board. The advice there is to either hold into the funds until your cadet/mid graduates as all manner of things could preclude graduation and the need for a plan B college or to withdraw at the rate you would normally be paying tuition at a civilian college, one quarter per year.
Each of the academies values their educations at +$400K as they add in the cost of cadet/mid salaries as well as tanks, air carriers, fighter jets, firearms, ammo, and other military equipment used in the training of officers. It’s totally a BS number, but the branches stand by it, and parents and high schools love to tout it.
(Our son is at USMA.)
Don’t forget that a new beneficiary can always be named, so holding on to the 529 money for future use by someone else is certainly a viable option.
A 529 distribution that is not subject to the 10% penalty for beneficiaries who are attending a military academy is limited as determined by the applicable service secretary, but in any event it will not exceed an amount “directly attributable to the education of the person to whom a course of advanced education is provided, including the cost of tuition and other fees (or, if none is charged, an amount determined by the Secretary concerned to be a reasonable charge for the education provided), the cost of books, supplies, transportation, and miscellaneous expenses, and the cost of room and board, but such term does not include pay or allowances under title 37 or a stipend under section 2121 of this title.” (From U.S code Title 10, sect. 2004(d)(3))
My guess is that as defined the amount will be considerably less than $400k.
Yes, of course, 529 funds can be used for other children, grandchildren, etc. Ours is a only child, so no complications there. Our financial advisor and our CPA, in conjunction with information provided by USMA, have confirmed that the directly attributable amount is about half that +$400K, more in the neighborhood of $200K. From West Point’s FAQ page:
The question of 529-eligible funds comes up at every parent brief at USMA and is always answered with “roughly $200K.” The USMA finance office can provide further detail.
(The $400K I referred to in my original post is the BS number that the academies are fine touting to kids and high schools for the purpose of scholarship bragging rights. As @BelknapPoint correctly surmises above, the defensible 529 amount for withdrawal purposes is much smaller.)
@traveler98: 529 money can also be used on grad degrees (or any higher education), so it may make sense for the money to sit there in case S needs it in the future (and can go to grandkids or whoever).