Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / Using a 529 Plan for Your Child's Military Academy Costs
Transcript
- Lucas: Alright, so today I want to dig into a specific use for a 529 plan that a listener actually emailed us about — paying for a child's attendance at a U.S. military service academy. Think West Point, the Naval Academy, the Air Force Academy. Luna: Oh, that's a good one. I think a lot of people assume those are free because of the tuition waiver, so maybe they never even think about using a 529. Lucas: Exactly. And the waiver only covers tuition and some fees. But there are still significant costs: room and board, uniforms, a laptop, travel, and other supplies. At the Naval Academy for the 2025–2026 academic year, the non-tuition costs come to about $12,000 a year. That's real money. Luna: And that's where the 529 can step in, because those are all qualified education expenses under the tax code. Lucas: Right. The IRS says a qualified higher education expense includes tuition, fees, books, supplies, equipment, and room and board for students enrolled at least half-time. Military academies are accredited institutions, so they qualify. The fact that tuition is waived doesn't disqualify the other costs. Luna: So you could pull out 529 money to pay for the midshipman's room and board, their uniforms, even the laptop they need for coursework? Lucas: Yes. Uniforms count as supplies or equipment — they're required. The laptop too, if the academy requires it. Room and board is straightforward as long as the student is enrolled at least half-time, which they obviously are. Travel? That's trickier — the IRS doesn't explicitly list travel as a qualified expense, but if it's required for a specific program, you might be able to justify it. Luna: Makes sense. And I know that some of these academies also have ROTC programs for students at civilian colleges. Could a 529 cover rotc related costs? Lucas: Yeah, that's a different angle. ROTC scholarships often cover tuition and fees, but a 529 can pick up the remaining qualified expenses: books, a uniform allowance, lab fees. The key is that the 529 funds can only go to expenses not already covered by tax-free scholarship money. So if the ROTC scholarship pays for tuition, you can't also use 529 money for the same tuition. Luna: Right, because that would be double-dipping and the IRS would penalize you. Lucas: Exactly. You have to coordinate. Generally, you take the scholarship first, then use 529 funds for what's left. And if the scholarship exceeds your qualified expenses, you can't just pull 529 money out tax-free — you'd owe taxes and a 10% penalty on the earnings portion. Luna: So if your kid gets a full ROTC scholarship, you might not need the 529 at all for college. But you could still use it for grad school later, or even change the beneficiary to another child. Lucas: That's a smart move. Or you could keep the 529 invested and use it for the child's future children. There's no time limit on using the funds. But going back to the academies — one thing to watch out for: the academies themselves don't bill you for tuition, so you need to be proactive about documenting your expenses. Luna: You mean like keeping receipts for uniforms and laptops? Lucas: Yeah, exactly. The IRS doesn't require you to submit anything upfront, but if they audit, you need to show that the distribution was used for a qualified expense. So keep all your receipts, the academy's cost of attendance statement, and any documentation that shows the expense was required. Luna: And the cost of attendance number is important because it sets a ceiling. You can't take out more than the academy's official cost of attendance minus any tax-free aid. Lucas: Right. So for the Naval Academy, the cost of attendance for a midshipman is about $12,000 a year. If you took out $15,000 from the 529, the extra $3,000 would be a non-qualified distribution. You'd owe income tax on the earnings and a 10% penalty. Luna: Ouch. So stick under that number. But it's still a great tool — I mean, even $12,000 a year for four years is $48,000. That's a lot of tax-free growth you can use. Lucas: Absolutely. And if you started saving early, that could be a significant chunk. Let's say you put $200 a month into a 529 from the time your child is born. By age 18, at a 7% average return, you'd have roughly $80,000. That covers the non-tuition costs at most academies with room to spare. Luna: And if they don't end up going to an academy, you can still use it for any other college or even trade school. So it's not a bet — it's a flexible savings vehicle. Lucas: Exactly. There's no downside to using a 529 for this. But let me address one more specific scenario: what if your child is appointed to an academy but then decides to leave after a year? Can you still use the 529 for a different school? Luna: Yes, as long as you change the beneficiary to another family member, or just keep the funds for the same child if they transfer to a civilian college. Lucas: Right. And if they leave the academy, the tuition waiver ends, so then the 529 could also cover tuition at the new school. That's an important flexibility. Luna: I think a lot of parents don't realize how many ways you can use a 529. This episode alone we've covered academies, ROTC, and even future grad school. Lucas: Yeah, and we could probably do a whole episode on the beneficiary change rules alone. But for today, the takeaway is: if your child is interested in a military academy, don't assume a 529 is useless. It's actually a perfect fit for those non-tuition costs. Luna: And if you're already contributing to a 529, you can keep doing so — just earmark those funds for room and board, uniforms, and a laptop. Lucas: Exactly. And as always, check your specific state's 529 plan because some offer additional tax deductions for contributions. But the federal rules are uniform across all plans. Luna: Great episode. I think we gave listeners a clear path forward. Lucas: I hope so. And if you have a specific question about your own situation, shoot us an email. We read every one. Luna: Alright, that's it for today. See you next time. Lucas: Take care, everyone.