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Can I ask about college funds/529 in this forum?

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Replies to: Can I ask about college funds/529 in this forum?

  • privateIDprivateID Registered User Posts: 236 Junior Member
    My child who is receiving financial aid is going to a Profile school. So maybe the actual impact here is a big deal if I had separate accounts vs one parent account. In fact, I believe there were some questions on the profile asking about such accounts. I plan to do a bit more research. Regardless, thanks for the info. You guys are really sharp in here understanding all the rules.

    OP - I apologize if I got offtopic a bit. Hopefully it was valuable for you too.
  • user4321user4321 Registered User Posts: 131 Junior Member
    It is never too late to open a 529 account. Even if you transfer money from another savings/investment account to a cash equivalent in a 529 account for a short period of time before tuition is due, you will avoid tax you would otherwise pay on the earnings in the 529 account, however small they may be.
  • swtaffy904swtaffy904 Registered User Posts: 201 Junior Member
    @user4321 can you explain that? Please and thank you
  • brantlybrantly Registered User Posts: 3,254 Senior Member
    A 529 account is an investment vehicle. The money you deposit in a 529 grows, depending on how the investments do. You do not have to pay capital gains taxes on the investment earnings.
  • swtaffy904swtaffy904 Registered User Posts: 201 Junior Member
    Ok but if we are starting paying for college next year it won’t really have time to grow much. Right?
  • BelknapPointBelknapPoint Registered User Posts: 3,766 Senior Member
    You do not have to pay capital gains taxes on the investment earnings.

    Correct, as long as the 529 money is used for qualified expenses. If not, then you will pay taxes on the investment earnings, and in may case a 10% additional tax ("penalty") as well. It takes good planning.

    Even if you transfer money from another savings/investment account to a cash equivalent in a 529 account for a short period of time before tuition is due, you will avoid tax you would otherwise pay on the earnings in the 529 account, however small they may be.

    529 contributions must be made in cash, so liquidating another investment to fund a 529 may itself bring a big tax bill.
  • user4321user4321 Registered User Posts: 131 Junior Member
    A simple example, if you are planning to pay a $10,000 tuition bill in October and you have a $10,000 bank cd that matures in September, you can transfer the proceeds of your cd to a cash equivalent fund in your 529 account and the interest you earn (however much that may be) for the period of time before you pay the school will be tax free
  • 3js3ks3js3ks Registered User Posts: 182 Junior Member
    We live in MI, so it looks like maybe a Michigan Education Savings Program may be a better option than a 529 for any tax benefit. My daughter is probably going to U of M or Michigan State (has been accepted to both but we're waiting on financial aid packages, etc. for her to decide). Thank you for all the information shared :) !
  • user4321user4321 Registered User Posts: 131 Junior Member
    edited January 12
    The MESP is a 529 plan. Using that plan as a Michigan resident gives you extra state tax breaks. I would highly encourage it. I wish we had something like that in my state (NJ)
  • missbwith2boysmissbwith2boys Registered User Posts: 506 Member
    If I were the OP and I lived in a state that offered any sort of a deduction for 529 contributions, I’d certainly open one to pass the funds through each year.

    I have a 529 account for each of my kids. I still contribute each month so that I can take advantage of my state’s deduction. We will continue to take advantage of the tax deduction for many years, likely long after they graduate. We long ago realized that the plans are just one more legal way to pass down a bit of $ to our kids and we are fortunate enough not to need them for college expenses.

    Eventually we will reassign the accounts and hand them over to our kids. They can choose to hold them for any future kids, or pay the taxes/penalties and use the $ for anything they want.



  • ARTCCARTCC Registered User Posts: 167 Junior Member
    edited January 14
    Most 529 plans should allow you to choose the level of investment risk you wish to take. Typically, the 529s for high school seniors and those attending college are in the lowest risk investments which have the lowest yields. As other posters have said, any income you get in your 529 is tax free as long as it is used for approved educational purposes.

    Our state doesn't offer any tax breaks for 529s, so we have ours in another state. Beware of nuisance fees--in our 529 account, if you don't invest at least $50 a month, you get hit with an account maintenance fee, so be sure you understand the fund rules and fees they charge.
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