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529 Beneficiary enlisted, now what?
Old 01-28-2018, 04:23 PM   #1
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529 Beneficiary enlisted, now what?

Not entirely an early retirement question but there are lots of smart people here.

17 years ago my mom & grandparents asked me to start a 529 for my nephew since my sister often said "why bother saving, we have to pay regardless"

She STILL don't understand the concept of compound interest, but that is another thread.

So, nephew decided to enlist in Army, off to basic training in June. He says no college plans as he is tired of school. Never been a great student, hard worker but not on the books. What do I do with the 529 funds earmarked for him? My mother and grandmother will rise from the grave & haunt me if I don't do the right thing.

My thought is to put the funds, about $40,000 towards a house once he goes that way. But that is outside the rules of a 529. Can I transfer to my own kids for their college & give nephew equivalent dollars? What is the ideal way to this without gettiing screwed by IRS & keeping the original intent in mind?

Edit: my own kids are 15 & 10 and have at least 3 years tuition $$ each sitting in my Roth. That seemed like the best way to grow the funds while still maintaining control if they decided to join a rock band & tour the world.
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Old 01-28-2018, 04:27 PM   #2
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You could just wait. I almost enlisted instead of going to college because at the time I too was tired of the regimentation of school. (Why I thought military life would be any better is still a mystery...)

Anyway, later I decided to go to college so he may well change his mind.
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Old 01-28-2018, 04:29 PM   #3
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For now - leave the funds where they are for now. Life can change things... perhaps he'll change his path in the future...

Here are some options for what to do with the funds.

- You can withdraw the contributions penalty free - since they are were post-tax funds.
- The growth will be taxable PLUS a 10% penalty. Ouch.

You can transfer the funds to a different beneficiary. Any other nephews/nieces? Does the nephew plan to have kids someday? It can continue to grow and be used for your future great nephew or niece.

You can use it for yourself for additional education. I had a friend use some leftover 529 funds he'd saved for his kids to get his PhD when he retired. (Finally had the time to achieve this lifetime goal and kids had done pretty well on merit scholarships.)
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Old 01-28-2018, 04:29 PM   #4
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Wait is not an option. Nephew already signed and has his "report to basic training date"

Yes, I could leave the funds and either turn it over to his kids if / when he has them. But I want to be aware of options.
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Old 01-28-2018, 04:48 PM   #5
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an article on changing beneficiary.............
https://www.fa-mag.com/news/avoiding...alls-6204.html

read w/ care since there are 2 families involved and they talk about the next beneficiary being in the same family............
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Old 01-28-2018, 04:59 PM   #6
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Wait is not an option. Nephew already signed and has his "report to basic training date"

Yes, I could leave the funds and either turn it over to his kids if / when he has them. But I want to be aware of options.
I am retired from the Navy and I have seen LOTS of young men and women enlist right out of high school (many of them not the best students) and "see the light" during their 3-4 years in uniform. Many of those folks go to college (or another form of post-secondary training) after they leave the service. In many cases they piggy-back onto skills they learned in uniform. For example, a former medic goes to nursing school; an electronics technician studies to be an EE. Many also become teachers, picking up on the supervisory/leadership experience they've had. So just because he's enlisted doesn't mean he won't eventually go to college.
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Old 01-28-2018, 05:38 PM   #7
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Keep it for now and change it to his kids names when he has kids. Rule are that you can change the beneficiaries name to any relative.
Money was meant for college keep it there.
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Old 01-28-2018, 07:06 PM   #8
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Yes, you should be able to change/ add your kid as beneficiaries - but I don't see the rush, notwithstanding he signed a military commitment. Looks like you have at least three years before your first reaches college age.

If things stay on course, you can page your your kids' education out of the 529, give the nephew cash to put down on a house after the military (and preferably after he is in contact for the house, and let your Roth grow for your retirement.
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Old 01-28-2018, 07:46 PM   #9
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Keep it for now and change it to his kids names when he has kids. Rule are that you can change the beneficiaries name to any relative.
Money was meant for college keep it there.
Make that the 529 is for post high school education, not just college, you can spend 529s on trade schools etc So you nephew might want that kind of education after leaving the military. Note that you should also consider the effect of the new GI bill since if he finishes 4 years he has a free 4 year degree as well. (If he does not use it one of his kids might).
Note if worst comes to worst you can withdraw the money pay the taxes on the income plus a 10% penalty.
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Old 01-28-2018, 07:54 PM   #10
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Wait is not an option. Nephew already signed and has his "report to basic training date"
Almost a third of folks who enlist never make it to or thru boot camp. Patience.

Also if he doesn't make it thru the whole first enlistment there may be a chance he will not rate his GI Bill benefits. He could use those funds at that time.
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Old 01-28-2018, 08:24 PM   #11
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I had a Prepaid Tuition Plan for my daughter's college. I did not realize that it had to be used for the prior year of college. I just paid for her college each year and thought of the Prepaid Tuition Plan as a savings we had. After so many years, they sent the money to me from the Prepaid Tuition Plan, even though I did not ask for it. We spent I believe a semester's worth of money and when I did my taxes that year, I saw the mistake that I made. We did owe tax on the earnings and a 10% penalty since it was not used for education. We also had to pay state tax on it. (My DD already had her college degree.). I changed the beneficiaries to our 2 granddaughters and thought life was good. Received a letter from the IRS stating that we owed several thousand dollars from this money. I appealed it and sent documentation and they agreed with me.

My DH and my son-in-law both used the GI Bill to get their college degrees. My son-in-laws younger brother is using his right now. (My son-in-law was a medic in the Navy, but knew he did not want to stay in the health field. He went into IT and likes it much better.)
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Old 01-28-2018, 08:29 PM   #12
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Originally Posted by Bigdawg View Post
Almost a third of folks who enlist never make it to or thru boot camp.
That doesn't sound right.

AG - United States Military Basic Training Attrition

Quote:
The branch with the lowest basic training attrition rate, according to figures from the Department of Defense, is the Air Force, which only sees between 7 and 8 percent of its recruits drop out after boot camp. The Navy, Army, and Marines have recruits drop out at roughly the same rate, as each other, between 11 and 14 percent annually.
Sorry, just being pedantic.
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