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If one receives a scholarship, partial or otherwise, an equivalent amount can be withdrawn, no penalty, but the gain portion is still subject to tax.
