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  • GI Bill and 529

    I've been contemplating some different strategies for taxes/estate.

     

    BLUF:  Can I withdraw non-qualified distributions from a 529 plan up to the amount that my post-9/11 GI bill is paying for my kid's college without incurring the 10% additional tax?

     

    More to follow on the strategy, but I just wanted to verify this exception to the additional 10% penalty.  It is my understanding that "veterans benefits" are similar to receiving a tax-free scholarship/fellowship etc. that allows you to withdraw that amount of money from a 529 penalty-free.  I would then still be subject to income tax on the distribution, but not the 10% additional penalty, correct?  Thanks everyone!

  • #2
    think that is correct. You would pay income tax only on the growth in the account as you take distributions for qualified education expenses and qualify for the penalty exception. The full distribution would not be taxable, iow.

    Thanks for your service.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Ok thanks!

      For discussion sake, lets say the GI bill pays 40k a year to my son's school.  Lets also assume my 529 plan has a total value of 160k (120k is contributions and 40k in earnings; i.e. 75% is contributions and 25% of it is returns/growth).  Therefore, it is my understanding that I can withdraw 40k/year from my 529 without paying a 10% non-qualified distribution fee as we discussed above.  I also THINK I understand that 30k of it would be tax-free and then I'd pay income tax on 10k -- (I read that every distribution is assumed to have the same ratio of contributions to growth for tax purposes).  https://www.edvisors.com/education-tax-benefits/college-savings/529-college-savings-plans/

      Is this right??

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      • #4
        That is my understanding, too, although I didn't read the article you linked to.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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