Reply to How long does a deposit have to sit in a DC 529 account to get the tax break?

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Reply to "How long does a deposit have to sit in a DC 529 account to get the tax break?"

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Hi there DCUM, could use the hive mind here.

Here is my situation - DD is a rising senior.  We are DC residents, and have emptied out our DC 529 account to pay for the first 3 years of college, and have savings accounts and I Bonds to pay for senior year.

Contributions to the DC 529 are deductible on our DC taxable income, up to $8,800 per year.  If I cash out the IBonds, and then deposit those into a DC 529, is there a certain amount of time they have to sit in the account before they are deductible?  Can I cash out the IBonds on September 1, deposit them into the DC529 account on September 2, and then use the DC529 to pay the tuition bill on September 3 and still get the tax break?  Or do I have to let those funds sit in the account for a certain amount of time?

Thanks for your input![/quote]

You can deduct up to $8000 per year (for a married couple), not $8800.[/quote]

While true, many people in 2 income DC households are better off filing Married Filing Separately on Same Return. In that case you can take only $4k in deductions (although you can carry forward unused deductions for a number of years. The delta between this filing and MFJ saves me and spouse many thousands annually.[/quote]

We file as "Married Filing Separately".  You can allocate $4000 to each spouse even filing that way.  It's still $8000 for a couple.[/quote]

2 things:

1. MFS will in almost every situation yield the highest tax liability as between the 3 married options under discussion. No way the deduction on the 4k makes it worthwhile
2.  Ibid on the maintenance fee for emptying the DC account
3. IRS transfer limit is per beneficiary regardless of how many accounts they have[/quote]

Actually 2 things:

1.  Our software shows the difference in tax liability because we can toggle between MFJ and MFS for DC taxes (we MFJ for federal).  It is always more tax due if we MFJ for DC taxes. I believe this has been identified as a common issue for dual earner households.

https://www.reddit.com/r/washingtondc/comments/1azmvo7/psa_taxes_if_married/

2.  Two and Three were already addressed in previous post.  It's worth $20 in annual maintenance fees for a $700 DC tax benefit.[/quote]

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