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I recently received a military scholarship which covers all of my tuition and housing at my university. The military will be back-paying the costs, so the university will send a check that reimburses the amount that my parents paid out of a tuition savings account (529 I believe).

Will I be able to use this check for whatever I want, or will it become taxable income?

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The order of events is a bit different than usual. But the result is same as a common example.

529 withdrawals not used for schooling are subject to tax and penalty on the portion that was growth (gains) on the account.

If one receives a scholarship, partial or otherwise, an equivalent amount can be withdrawn, no penalty, but the gain portion is still subject to tax.

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  • "If one receives a scholarship, partial or otherwise, an equivalent amount can be withdrawn", so that means I could withdraw the amount that I received in scholarship tax free? – BibleFace Apr 7 '17 at 19:37
  • Keep reading. The amount comprises deposits and gains/growth. He will be taxed only on the growth portion. The broker should be able to tell your parents what their deposits added up to and what portion of the account is attributed to gains. – JoeTaxpayer♦ Apr 7 '17 at 19:38
  • Each College/University must publish its TCA (Total Cost of Attendance) this includes items that might not be included in a scholarship but 529 money can still be used to pay for them. This can include transportation costs, books... – mhoran_psprep Apr 7 '17 at 19:59
  • @mhoran_psprep - those are estimates, right. OP needs to keep records of such expenses to properly document. No? Consider, book price may be new, but a student can buy used or get a copy from last semester student. The $200 book might never have been bought. – JoeTaxpayer♦ Apr 7 '17 at 20:10

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