I wrote recently about College 529 Plans, exploring their basics and some opportunities to maximize taxes, however here is an interesting twist on them that could help yourself or your significant other as they seek to attend College or Grad School.
Each State has different rules for the tax treatment of College 529 Plan Contributions, so please check accordingly, a full list is included in this post: College 529 Plans Explained. New York treats contributions to a College 529 Plan in the following manner:
- Federal Tax – No Tax on Earnings within the Plan, no tax on any qualified withdrawals.
- State Tax – Tax Deduction of $5,000 per person ($10,000 married filing jointly) on contributions. Income restrictions of $110,000 for Single Filer ($220,000 married filing jointly) apply.
What I found interesting from my exploration of 529 Plans was the flexibility in constructing them, in that you can create a plan and name yourself as Beneficiary. When most people think of a 529 Plan, they think of it as something that they can contribute over time for in order to help out their kids or grandchildren – but what about this:
Wife is thinking to attend Grad School Part Time in Fall; tuition at NYU is currently costing $1382 per credit. Currently we have no College 529 Plan.
Open a plan today, fund with $10,000 and use that money to pay for Tuition. We wouldn’t be seeking any capital appreciation, so would put the money into a Money Market or other stable cash based fund within the 529 Plan, and write a check out of the account to pay for tuition. In January 2014 we could fund again for up to another $10,000 to cover costs for that year.
I’m pretty amazed by this; anyone who is attending college in NYS can do this, and check your own states rules as I think that many other all the same thing. The person I spoke with at Vanguard, which administers plans for 5 states, including NYS informed me that they only require the account to be open and funded for 7 Business Days prior to withdrawals in order to be qualified. For a New York Resident this can knock thousands from your state tax bill, and really help offset the cost of college.
Please consult with a qualified tax professional prior to embarking on any of my harebrained ideas.
I know this post is 2 years old, but I will be doing the same thing in Michigan. TIAA CREF makes you keep the plan open 10 days. However, deduction is disallowed if you pull money out the same year. So, an every other year strategy would need to be employed.
Thanks for that. I looked into it and it seems that the deduction may be allowed in certain states, but not others.