Question for DC 529 investors

[Anonymous]

Expecting our first child soon and looking to open a 529.

HHI $375. Our account suggested maxing DC contributions of $8k to get state tax credit.

I am looking to hear from those who contribute to DC 529 and which fund do you invest in and way?

I am an immigrant married to US citizen and the cost of college seems daunting!!!

Thank you for your insight.

[Anonymous]

Yes, $8000 a year to get the maximum DC tax break is good advice.

When we started, the fees for the target date funds are much lower than for others so we use those, but now I see that the total market fund fees are basically the same (around 0.3 percent), so it really depends on your preferences. If you don't have strong investment preferences or don't want to do a lot of work, the simplest thing would be to just select the target date fund for your child.

See the FEE STRUCTURE TABLE on p.47 of
https://cdn.unite529.com/jcdn/files/DCD/pdfs/programdescription.pdf

[Anonymous]

And one small correction: It's not a tax credit, but a deduction: You reduce your taxable income by the amount you contribute each year, by up to $8000 per couple (but I believe it has to be split $4000 per person). Your marginal tax rate is about 9 percent, so you would save 9 percent of $8000, or around $700.

[Anonymous]

Start with $8,000 a year in DC 529, get the tax credit.

If you want to add more than that, open a second 525 - I used the Utah 529 - to put in additional contributions.

My second child is a sophomore in college, and this plan has worked out great for us. I just put the funds in the age-based accounts - set it and forget it.

[Anonymous]

Anonymous wrote:And one small correction: It's not a tax credit, but a deduction: You reduce your taxable income by the amount you contribute each year, by up to $8000 per couple (but I believe it has to be split $4000 per person). Your marginal tax rate is about 9 percent, so you would save 9 percent of $8000, or around $700.

This is true, it requires two 529 accounts. Open one for each parent and deposit $4,000.

[Anonymous]

Anonymous wrote:

Anonymous wrote:And one small correction: It's not a tax credit, but a deduction: You reduce your taxable income by the amount you contribute each year, by up to $8000 per couple (but I believe it has to be split $4000 per person). Your marginal tax rate is about 9 percent, so you would save 9 percent of $8000, or around $700.

This is true, it requires two 529 accounts. Open one for each parent and deposit $4,000.

Correct. But every year, despite putting at least $4k each in our two separate accounts, we still come out better by filing for DC only (not for Federal), as married filing separately, even though that means you can only claim one account and thus just $4000.

[Anonymous]

You can use a compound interest calculator online to get a sense of what your contributions will yield. Even doing $1000 a month doesn’t get you very far if you have more than one kid.

[Anonymous]

DC 529 expenses are high. Contribute to the max tax advantage and then roll it into another state after you’ve had it in there long enough to meet the minimum.

[Anonymous]

Expenses aren't that bad. Not quite as low as you could get outside 529, but US total stock market index fund is 0.32% ER.

[Anonymous]

Anonymous wrote:Expenses aren't that bad. Not quite as low as you could get outside 529, but US total stock market index fund is 0.32% ER.

Thank you. I am thinking of investing in the US large cap, looks great and the return looks good too.

[Anonymous]

Anonymous wrote:DC 529 expenses are high. Contribute to the max tax advantage and then roll it into another state after you’ve had it in there long enough to meet the minimum.

Great idea, how soon can I do this?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:And one small correction: It's not a tax credit, but a deduction: You reduce your taxable income by the amount you contribute each year, by up to $8000 per couple (but I believe it has to be split $4000 per person). Your marginal tax rate is about 9 percent, so you would save 9 percent of $8000, or around $700.

This is true, it requires two 529 accounts. Open one for each parent and deposit $4,000.

Correct. But every year, despite putting at least $4k each in our two separate accounts, we still come out better by filing for DC only (not for Federal), as married filing separately, even though that means you can only claim one account and thus just $4000.

Can't you file as married filing separately on same return and claim both? I guess I've never tried fiddling around with options that involve filing separate returns.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:And one small correction: It's not a tax credit, but a deduction: You reduce your taxable income by the amount you contribute each year, by up to $8000 per couple (but I believe it has to be split $4000 per person). Your marginal tax rate is about 9 percent, so you would save 9 percent of $8000, or around $700.

This is true, it requires two 529 accounts. Open one for each parent and deposit $4,000.

Correct. But every year, despite putting at least $4k each in our two separate accounts, we still come out better by filing for DC only (not for Federal), as married filing separately, even though that means you can only claim one account and thus just $4000.

Can't you file as married filing separately on same return and claim both? I guess I've never tried fiddling around with options that involve filing separate returns.

I am asking my accountant this question.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:And one small correction: It's not a tax credit, but a deduction: You reduce your taxable income by the amount you contribute each year, by up to $8000 per couple (but I believe it has to be split $4000 per person). Your marginal tax rate is about 9 percent, so you would save 9 percent of $8000, or around $700.

This is true, it requires two 529 accounts. Open one for each parent and deposit $4,000.

Correct. But every year, despite putting at least $4k each in our two separate accounts, we still come out better by filing for DC only (not for Federal), as married filing separately, even though that means you can only claim one account and thus just $4000.

Can't you file as married filing separately on same return and claim both? I guess I've never tried fiddling around with options that involve filing separate returns.

I am asking my accountant this question.

No. Whether it’s separate or separate on same return, you only claim 1.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:And one small correction: It's not a tax credit, but a deduction: You reduce your taxable income by the amount you contribute each year, by up to $8000 per couple (but I believe it has to be split $4000 per person). Your marginal tax rate is about 9 percent, so you would save 9 percent of $8000, or around $700.

This is true, it requires two 529 accounts. Open one for each parent and deposit $4,000.

Correct. But every year, despite putting at least $4k each in our two separate accounts, we still come out better by filing for DC only (not for Federal), as married filing separately, even though that means you can only claim one account and thus just $4000.

Can't you file as married filing separately on same return and claim both? I guess I've never tried fiddling around with options that involve filing separate returns.

I am asking my accountant this question.

No. Whether it’s separate or separate on same return, you only claim 1.

Right, but you can file separately on same return, and each spouse claims one account. TurboTax very clearly presents me with that option, and it indicates the max deduction is $4,000 per spouse. We file separately on same return; I have never checked to see if it would save us money to file separately on separate returns, because I don't think any potential savings from doing that would likely be worth the potential hassle involved.