The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: bradspartan on February 06, 2020, 02:18:55 PM
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I just saw that the secure act now allows you to use up to $10k from a 529 to pay off student loans over the lifetime of the 529 - starting this year. As we're still on our student loan dept payoff journey, I don't see why we wouldn't take advantage of this.
I'm considering:
1. Opening a 529 plan
2. Dropping some start up $ in it (say $500)
3. Setting up my paycheck to add $ in pretax (roughly $500 a month based on our current payoff plans)
4. Using that $500 pretax to pay off loans each month (until $10k limit is reached)
I don't see why we wouldn't do this - would save the 22% federal income tax. Am I missing anything here? (we live in OH)
Secure act changes: https://www.financialsamurai.com/how-the-secure-act-changes-your-retirement-planning/
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529 contributions are not deductible on your federal taxes. They are in some states. A quick Google says you can deduct $4000 in Ohio.
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Sounds like a good Idea to me
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529 contributions are not deductible on your federal taxes. They are in some states. A quick Google says you can deduct $4000 in Ohio.
This tossing a metaphorical and literal wrench into my thoughts. Just googled and you're 100% right lol. Oh well - will let the bit I already put in grow for books for the next semester.
Cheers
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Looks like Ohio does have a state tax deduction though.
https://www.collegeadvantage.com/blog/blog-detail/posts/2019/03/14/ohio-529-plan-can-help-you-save-more-green
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We contribute to a 529 for our child. I can confirm that these contributions are not tax deductible.
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There's no reason you can't take advantage of the state deduction. Michigan allows $5000. Only saves $212.50 (4.25% tax rate), but it's free money.
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Interesting idea. One problem, based on a tiny bit of research, is that states are now allowed-not required-to treat student loan payments as a qualified distribution. So ymmv by state.
"The big unknown is how the states will react," Kantrowitz wrote. "We do not yet know which of the 30+ states with state income tax deductions or tax credits will allow them to be used with student loan repayment. If the addition of K-12 tuition by the Tax Cuts and Jobs Act of 2017 is any indication, probably 21 of the states will allow it. The others will treat using 529 plan funds for student loan repayment as an non-qualified distribution."