facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
GI Bill. 529 Funds. Which Should I Use First? Thumbnail

GI Bill. 529 Funds. Which Should I Use First?

College Planning

Junior and his sister will be starting college in a few years. You’ve transferred GI Bill benefits, have some 529 funds and will have to pay some expenses out of pocket. But when should you use the different sources to pay for college? Well, like every good Weapons Officer said, “It depends.” Some of things it depends on are:

  • How much you trust the government
  • Where you are in your career
  • If the kids will get any scholarships or go to a private school

How Much Do You Trust Uncle Sam?

If you trust the government to not change the rules for the GI Bill then delaying using GI Bill benefits makes a lot of sense. GI Bill keeps up with the inflation rate for college tuition (at least for in-state schools) with zero investment risk. That’s a pretty good deal. So, in this case you might want to use 529 funds and out of pocket first and then use GI Bill benefits.

Conversely, if you don’t trust the government to not modify the GI Bill, then use the benefits as soon as possible and save your 529 funds for later.

Where Are You in Your Career?

If you’re still on active duty, then you will likely qualify for the American Opportunity Credit (AOC…not that AOC). In essence, the government will pay for the first $2,000 of qualified education expenses for you via the $2,000 tax credit. If you will retire from the military while your kids are in college, then you might want to pay the first $2,000 in college expenses out of pocket expenses and use 529 funds for the reset while you’re still on active duty. Technically, you can also get an additional $500 credit if you pay an additional $2,000 out of pocket (not as good of a deal). This is due to the fact that your income may exceed the AOC phase out limit ($180,000 AGI) when you have a job in retirement.

If you’ve already retired from the military and you will retire, retire while the kids are in school then you might want to use GI Bill first and out of pocket funds and 529 funds after your retirement when your income will likely be below the limit.

What If Scholarships are Involved?

If both of your kids will go to an in-state school and one of them will get scholarships, then the issue isn’t timing but which child. Since GI Bill pays 100% of in-state qualified tuition and fees and scholarships received will be taxable income to the child. Whether or not income tax is paid depends on several factors but taxes could be owed on the scholarship money. In this case, use most or all of your GI Bill benefits on the child that won’t get scholarships and use your 529 funds for the child with scholarships.

The same logic applies if one child will go to a private school and GI Bill won’t cover all qualified expenses and both kids get scholarships. Then it makes sense to use the GI Bill for the child that will be attending private school.

Military Finances are Different

Just like a military career isn’t the same as a civilian career, military finances aren’t the same as civilian finances. If you’re going to get help with your finances, we think you should work with someone who deals with those differences every day. If you’d like to chat, give us a call or drop us an email.

If you found this article useful, you might like the following blog posts:

Military Finances 201: Do GI Bill Benefits Affect Financial Aid and the FAFSA?

Congress Provides "Guidance" to DoD on GI Bill Benefit Transfers

VA Education Benefits for Spouses and Kids

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. C.L. Sheldon & Company, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to C.L. Sheldon & Company, LLC website or incorporated herein, and C.L. Sheldon & Company, LLC takes no responsibility therefore. All such information is provided solely for convenience, educational, and informational purposes only and all users thereof should be guided accordingly. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.