Where to put college money after you max out 529 state tax deduction?

[Anonymous]

Anonymous wrote:

Anonymous wrote:This is OP. Income is too high for a Roth, but we can do a backdoor Roth. Is a backdoor Roth the next best step? I have not done because it sounds like too many steps and paperwork to track, but would if it is better than putting more money into our 529.

Yes, I think backdoor Roth is your next step. I would use Vanguard - I think it is fairly easy to execute.

Backdoor roth is only tricky if you have existing traditional IRAs that you don't want to convert. If you do, transfer those to your 401k prior to your backdoor contribution and that headache is gone.

[Anonymous]

Could someone explain how a backdoor Roth works? Sorry, fairly clueless about all of this and for the first time ever above the Roth income limit.

[Anonymous]

https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

[Anonymous]

The benefit if the 529 is the federal tax deferred earnings, not the state deduction


You can put up to $14K per year, per parent, per child into the 529 - I wouldn't limit myself by the value of the state deduction which is what, 4%? So you put in $4k and you get a $160K state deduction?

[Anonymous]

Anonymous wrote:The benefit if the 529 is the federal tax deferred earnings, not the state deduction


You can put up to $14K per year, per parent, per child into the 529 - I wouldn't limit myself by the value of the state deduction which is what, 4%? So you put in $4k and you get a $160K state deduction?

Thanks, yes realize i can put more in beyond the state tax deduction amount, but before i do that i am wondering if there is a better place to put it. Maybe the roth.

[Anonymous]

Anonymous wrote:

Anonymous wrote:The benefit if the 529 is the federal tax deferred earnings, not the state deduction


You can put up to $14K per year, per parent, per child into the 529 - I wouldn't limit myself by the value of the state deduction which is what, 4%? So you put in $4k and you get a $160K state deduction?

Thanks, yes realize i can put more in beyond the state tax deduction amount, but before i do that i am wondering if there is a better place to put it. Maybe the roth.

You should be using your Roth BEFORE you do the 529, as it is more flexible (contributions can be taken out at any time without penalty) and you should be taking care of yourself first. The 529 is exactly like a Roth account (after tax money, no further taxation), plus the state tax deduction - so while the Roth money has been subject to federal and state tax, the 529 was only subject to federal tax - it will never be taxed by the state. It can be a gamble, as there is a penalty with withdrawing amounts that aren't used for education.

Typically, I would recommend contributing to you 401k (until max), then your Roth (until max), then 529. The amount for the 529 would depend on the state and your expected cost. VA allows you to put a ridiculous amount into 529 while taking the full deduction, so the limitation is your available money and your expected need.