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  • AvatarAphroditus
    Participant
    Post count: 64

    I’m a married 33 year old looking to go to graduate school. I have a great job, so this would boost my credentials. My company pays $5k for it and I will have to come up with $7k out of pocket. I’m wondering if it’s worth opening a 529 for this purpose or just paying out of pocket. There’s no real time limit on when I have to do this, it’s just when it’s a good time; it’s online and 100% from home so I can balance it with work and family (no kids yet). Does anyone have any thoughts on good 529 accounts and what we might want to invest in? Would it be prudent to invest some money in one of the S&P 500 index funds in there when the market bottoms and reap the gains?

    Any advice anyone has would be greatly appreciated . . . cheers!

    AvatarLawrence Fura
    Participant
    Post count: 27

    I’m not a tax or financial expert but personally from what I do know I think the main reason to open the 529 is because you would be able to take a state tax deduction (assuming your state offers it) on the money you put in and it for the year(s) you contribute.

    It would then be able to grow tax free and you can use the funds you contributed as well as any growth to pay for your schooling and you would not have to pay state or federal taxes on the growth when you use the funds.

    Be sure to check your state tax deductibility rules because some states allow you to take a tax deduction on your state taxes no matter which states plan you use while other states like New York where I live only allow you to take the deduction on your state taxes if you use that states 529 plan.

    Also keep in mind with a 529 plan you can use it for yourself, your spouse, your kids and your grandkids and honestly any one else. You can change your beneficiary of the plan at any time and as long as the money is used for allowed educational expenses you good.

    The important thing to keep in mind is that you are only allowed to use the investment options available to you in the plan. I have experience only with New York and Utah’s plans and both of those states only allow you to pick from very general allocation type plans such as a 70% Stock/30% Bond etc type plans and you can only change the plan a couple of times a year at most.

    So at least in those plans investing in individual stocks or very specific etf’s are off the table and jumping in and out of the market is somewhat doable but not very practical since you are limited to only a couple of changes a year.

    Hope that helps

    Sean HymanSean Hyman
    Keymaster
    Post count: 5577

    529’s are more about taxes than investment. You’d want to direct that question to your tax person and see what they say. I’m not a pro on that.

    Leslie HarvathLeslie Harvath
    Participant
    Post count: 346

    Aphrodite, the biggest issue with me and our 529 is its inflexibility. We have one tied to our credit card to earn funds instead of miles (Upromise card). I think the minimum monthly contribution is $50 (that is what we’ve done). There are lots of choices of plans based on either your risk profile or time needed, but now that we’re with Sean, I’d rather have gone with him from the start (our annualized returns are 6.34% over 10 years). It is nice that we have a $35k nest egg for a small monthly investment, but I’d rather have the control. It would be interesting to see what your tax person says. Keep us updated!

    Sean HymanSean Hyman
    Keymaster
    Post count: 5577

    Yeah, me personally, I’d rather have more control and a greater array of investments than a more limited plan. But yes, talk to the tax pro before making your decision.

    AvatarAphroditus
    Participant
    Post count: 64

    Let me make sure I understand this correctly. A 529 is an account that allows one to save for education and the *gains* on the contributions are tax free when used for “qualified” educational purposes, right?

    Thanks!

    Sean HymanSean Hyman
    Keymaster
    Post count: 5577

    Don’t trust answers here as it concerns taxation or tax deferred accounts. The correct place to go is to your tax person…not here. We do have a couple of tax pros as subscribers but you’ll want to talk to your tax person to see what they say. This site is all about stock selection, not tax advice. So make sure to go to the correct source to get the correct answer.

    TainoTaino
    Participant
    Post count: 70

    @Aphroditus I have been contributing to a 529 for many years, I have used it to pay tuition for my son my daughter and my grandkids. As everyone has stated depending on which state you live in, I am in Kansas I get a tax break and the money grows tax-free and I can spend it for any accredited school. And as of right now everything is in a very conservative fund which I believe to be in treasuries. Waiting on the market to turn and I will find an index fund and will relocate the money when that happens. As long as the money is used for an accredited school for higher education it will not be taxed. In my opinion if you are paying off tuition fees books computers etc for higher education, I think it’s a very wise investment. I hope that helps.

    TainoTaino
    Participant
    Post count: 70

    @aphroditus as Sean Hyman has recommended do consult with a tax expert.

    • This reply was modified 2 weeks, 5 days ago by TainoTaino.
    AvatarLawrence Fura
    Participant
    Post count: 27

    Again not a tax pro and I do advise you to talk to one in your state but generally yes gains are not taxed but each state has different rules. For example if you look at the irs site https://www.irs.gov/taxtopics/tc313

    You will find there that it says:

    Distributions aren’t taxable when used to pay for qualified higher education expenses (including tuition at an elementary or secondary public, private, or religious school). However, if the amount of a distribution is greater than the beneficiary’s qualified higher education expenses (including tuition at an elementary or secondary public, private, or religious school), a portion of the earnings is taxable.

    However each state can set slightly different rules so for example in NY where I am they state:

    New York State tax issues: To qualify for New York State tax-free withdrawals on earnings, the money must be used for qualified higher education expenses at an eligible educational institution. Under New York State law, distributions for K-12 tuition expenses are considered nonqualified withdrawals and will require the recapture of any New York State tax benefits that have accrued on contributions.

    So in this case if you were using it to fund your childs private elementary school it does not qualify as tax deductible in NY state’s eyes even though the fed’s allow it.

    So key is going to a tax pro in your state and finding out the rules and ins and outs.

    AvatarLing
    Participant
    Post count: 226

    Also, taking 529 also affects financial aid. In my case, If you are not qualified ( high family income), then it doesn’t matter.

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