Does anyone use 529 for tuition payments?

[Anonymous]

Since you can use $10k per year for K-12 education, we're thinking of running up to $10k of our payments through a 529 to save on state taxes some. Anyone else see an advantage or disadvantage with this?

[Anonymous]

Anonymous wrote:Since you can use $10k per year for K-12 education, we're thinking of running up to $10k of our payments through a 529 to save on state taxes some. Anyone else see an advantage or disadvantage with this?

No...that is the smart thing to do. If you can deduct the $10k from your state taxes, you could literally deposit that $10k into your 529 and then distribute it a week later to pay for school. It is capped at $8k in DC...but in DC you are effectively getting a risk-free 10% return on that $8k.

[Anonymous]

We do this. No disadvantage - that's precisely why they amended the 529 rules a few years back to allow parents to use 529 funds for primary/secondary school too.

I think there is a rule that says the funds need to be in the 529 for 10 business days before you pull them out again, but check that. (This was for VA.)

[Anonymous]

For folks who do this, have you set up a separate state 529 for this purpose? Our kids have the bulk of their 529 in the Utah plan because our current state doesn't have any state income tax advantage for 529s, but we are likely moving to DC next year. Would you set up a 529 specifically for tuition purposes separate from the existing Utah plan?

[Anonymous]

If you're already enrolled in the DC plan for the 529, and already taking advantage of the tax break, there's no extra benefit here, is there? I'm not fully following this. Can you explain like I'm a dolt?

[Anonymous]

Anonymous wrote:If you're already enrolled in the DC plan for the 529, and already taking advantage of the tax break, there's no extra benefit here, is there? I'm not fully following this. Can you explain like I'm a dolt?

I think there is no additional benefit other than if you might be overfunded for college and you want to redirect some of the savings to K-12 education. If you are already taking the $8K deduction then you're correct that there is nothing additional beyond that.

[Anonymous]

Anonymous wrote:If you're already enrolled in the DC plan for the 529, and already taking advantage of the tax break, there's no extra benefit here, is there? I'm not fully following this. Can you explain like I'm a dolt?

No. We're not currently using the 529 for lower school. We may use it for high school because we are thinking we may have over saved some due to generous grandparents. If we're concerned about having to much it makes sense to pull some out early. But why would you pass up the tax free growth by just putting it in only to take it out 10 days later?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Since you can use $10k per year for K-12 education, we're thinking of running up to $10k of our payments through a 529 to save on state taxes some. Anyone else see an advantage or disadvantage with this?

No...that is the smart thing to do. If you can deduct the $10k from your state taxes, you could literally deposit that $10k into your 529 and then distribute it a week later to pay for school. It is capped at $8k in DC...but in DC you are effectively getting a risk-free 10% return on that $8k.

Do you know what the caps are for MD, VA, and DE?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Since you can use $10k per year for K-12 education, we're thinking of running up to $10k of our payments through a 529 to save on state taxes some. Anyone else see an advantage or disadvantage with this?

No...that is the smart thing to do. If you can deduct the $10k from your state taxes, you could literally deposit that $10k into your 529 and then distribute it a week later to pay for school. It is capped at $8k in DC...but in DC you are effectively getting a risk-free 10% return on that $8k.

Do you know what the caps are for MD, VA, and DE?

This is so easy to find on Google. Stop making internet strangers do very basic work for you.

[Anonymous]

Anonymous wrote:For folks who do this, have you set up a separate state 529 for this purpose? Our kids have the bulk of their 529 in the Utah plan because our current state doesn't have any state income tax advantage for 529s, but we are likely moving to DC next year. Would you set up a 529 specifically for tuition purposes separate from the existing Utah plan?

If you plan to continue with the Utah plan, then yes it would make sense to set up a DC plan and then just contribute to the DC plan to get the tax benefit. You realize that at the end of the day, it is netting you say $800 (10% of $8,000...it is only $4,000 if single BTW)...not nothing, but not a ton of $$$s either.

[Anonymous]

We planned to do that and then talked to our accountant. This only makes sense if you’ve overfunded your 529s. If you give to a 529, that counts against annual gift tax. So if you put 10k in your 529 for child X, you can only give them 7k (in 2023). We have funded the 529s but instead of putting more $ in them for k-12, are putting the money in a brokerage account. You need to run the numbers on potential interest or benefit from gifting them the full 17k per person vs the tax benefit of funneling 10k of that through the 529. All of this assumes you don’t need to use the 529 to pay for k-12.

[Anonymous]

Anonymous wrote:We planned to do that and then talked to our accountant. This only makes sense if you’ve overfunded your 529s. If you give to a 529, that counts against annual gift tax. So if you put 10k in your 529 for child X, you can only give them 7k (in 2023). We have funded the 529s but instead of putting more $ in them for k-12, are putting the money in a brokerage account. You need to run the numbers on potential interest or benefit from gifting them the full 17k per person vs the tax benefit of funneling 10k of that through the 529. All of this assumes you don’t need to use the 529 to pay for k-12.

I hear you...but not sure how many people are gifting their kids anything at all right now, and certainly nothing close to $17k per year.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We planned to do that and then talked to our accountant. This only makes sense if you’ve overfunded your 529s. If you give to a 529, that counts against annual gift tax. So if you put 10k in your 529 for child X, you can only give them 7k (in 2023). We have funded the 529s but instead of putting more $ in them for k-12, are putting the money in a brokerage account. You need to run the numbers on potential interest or benefit from gifting them the full 17k per person vs the tax benefit of funneling 10k of that through the 529. All of this assumes you don’t need to use the 529 to pay for k-12.

I hear you...but not sure how many people are gifting their kids anything at all right now, and certainly nothing close to $17k per year.

I'm PP - OP asked for advantages and disadvantages. What I describe is a disadvantage.