How much can I w/d from child’s 529 without incurring taxes? Assume $30k in qualified educ expenses. VA pays 5k in tuition, and 4k in BAH. Can I w/d 25k from 529?

Using partial GI Bill benefits. IRS does not seem to count BAH since it is not "required to be used for education expenses."

Answer

Withdrawals from a § 529 Education Savings Plan are not taxable so long as the withdrawal is for payment of eligible Qualified (Higher) Education Expense [in 2018, must be Higher], in 2019, any grade].

So, the total expense you mention is $30,000 BUT there is a $5,000 reduction in that attributable to a payment by Veterans Administration and a further reduction of $4,000 as well.  Thus, the balance of Qualified Education Expense is only $21,000.  Payments of more would result in taxable income to the Beneficiary, as reported on Form 1099-Q.

Withdrawing $25,000 to pay a net expense of $21,000 would generate taxable income, whether or not BAH payments are unrestricted, since they still reduce the expense to be paid.

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Scruffy_Curmudgeon , Firefighter/medic IAFF retired
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