Author Topic: 529 plan for private high school  (Read 418 times)

mountain dentist

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529 plan for private high school
« on: October 30, 2018, 09:14:17 AM »
Fellow parent mustachians,
  With young children, we are hoping to pursue private school for their education due to the poor public school system in our area. My wife and I would like to start saving now, and we may as well take any tax advantages we can get. Can a 529 investment account be used for tuition at a private high school? I was considering opening up a Vanguard 529 account. Vanguard operates their 529 account out of Nevada, and we live in Tennessee. Thanks guys!

onlykelsey

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Re: 529 plan for private high school
« Reply #1 on: October 30, 2018, 09:17:00 AM »
Fellow parent mustachians,
  With young children, we are hoping to pursue private school for their education due to the poor public school system in our area. My wife and I would like to start saving now, and we may as well take any tax advantages we can get. Can a 529 investment account be used for tuition at a private high school? I was considering opening up a Vanguard 529 account. Vanguard operates their 529 account out of Nevada, and we live in Tennessee. Thanks guys!
Currently you can use a 529 for private school, but that is a new development and not guaranteed for the future.  I guess it's not guaranteed 529s will exist at all in the future, but it seems basically impossible for them not to exist and allow you to use funds for college by the time your children are in college. 

Vanguard makes this very easy to figure out based on what state you live in.  You should check out their site https://personal.vanguard.com/us/whatweoffer/college/finda529Popup.jsf

secondcor521

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Re: 529 plan for private high school
« Reply #2 on: October 30, 2018, 09:31:46 AM »
Two things:

1.  I believe the current tax law limits you to $10K per year per child in spending from 529's for private schooling before college.  However, note that 529 money can also be used for college expenses, so oversaving probably won't be a problem.

2.  Many states offer tax breaks for investing in 529's, but only if you invest in your home state's plan.  Some states have decent 529 investment options with low fees, others don't.  Vanguard's Utah plan I think has one of the best combination of investments and low fees - or it used to anyway.  So take a look at Tennessee's plans and maybe the Utah plan and see if the tax break is worth the difference in quality.  Personally I used my home state's plan because I felt like the tax break was worth it - I think it was something like $4K per kid deduction at about 8% state tax deduction per year.

Good luck!

reeshau

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Re: 529 plan for private high school
« Reply #3 on: October 30, 2018, 02:04:37 PM »
If you are utilizing the tax breaks, you also need to understand if it is limited by usage.  For example, in Michigan you don't get a deduction for a contribution in a year you have also made a withdrawal.  So with their plan, you would either need to fund the whole thing ahead of time, or be limited in deductions during schooling.  Of course, like all things this can vary by state.

mountain dentist

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Re: 529 plan for private high school
« Reply #4 on: October 30, 2018, 03:20:49 PM »
Thanks for the insight!
According to this table provided by the Vanguard website, it appears that neither the Vanguard 529 or the Tennessee state sponsored 529 plan have state Tax benefits. The table does not show anything about federal tax benefits- but I assume they both would be honored with federal tax benefits. Since the fees appear lower for most funds in the Vanguard plan, I'm inclined to choose Vanguard over the TN state sponsored plan.

Does the fact that the Vanguard fund is sponsored by Nevada preclude me from being able to use the funds for an education in Tennessee? I just want to make sure I'm not missing anything before I invest a lot into this program! Thank you all

onlykelsey

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Re: 529 plan for private high school
« Reply #5 on: October 30, 2018, 03:24:48 PM »
Thanks for the insight!
According to this table provided by the Vanguard website, it appears that neither the Vanguard 529 or the Tennessee state sponsored 529 plan have state Tax benefits. The table does not show anything about federal tax benefits- but I assume they both would be honored with federal tax benefits. Since the fees appear lower for most funds in the Vanguard plan, I'm inclined to choose Vanguard over the TN state sponsored plan.

Does the fact that the Vanguard fund is sponsored by Nevada preclude me from being able to use the funds for an education in Tennessee? I just want to make sure I'm not missing anything before I invest a lot into this program! Thank you all
Aren't there no state taxes in TN?  What state tax benefit would you be looking for?  The full comparison is on Vanguard's site as well: https://vanguard.wealthmsi.com/comp529main.php?vang1=97&planid1=206&planid2=

Vanguard looks better to me.

secondcor521

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Re: 529 plan for private high school
« Reply #6 on: October 30, 2018, 03:29:23 PM »
Usually the tax benefit on the state level is a state income tax deduction.  I just looked it up, and Tennessee doesn't have a state income tax, so that is why there are no state income tax deductions for making 529 contributions to the Tennessee plan.

Yes, all 529 plans receive the federal tax benefits - there is no federal deduction for contributions, but earnings grow tax-deferred, and distributions that are used for qualified educational expenses are tax-free.

You can use the funds from a 529 for any qualifying higher education institution anywhere, regardless of the state that sponsored the particular plan.  It can be anywhere in the US, and IIRC even a few foreign schools qualify.  Pretty much any school that offers federal student aid qualifies, which includes pretty much all US universities and colleges.