Author Topic: How do 529s work?  (Read 1094 times)

lavagirl

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How do 529s work?
« on: April 16, 2019, 02:33:21 PM »
If I were to put money in a 529 to use for private online school, is that allowed? Can I put the money in one week and use it for tuition the next?

seattlecyclone

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Re: How do 529s work?
« Reply #1 on: April 16, 2019, 03:25:56 PM »
The recent tax bill did allow 529 money to be used for private K-12 schools...not sure exactly what the requirements would be and whether an online school would meet them or not.

You can contribute money and take it out right afterwards, but there isn't much benefit to doing so. You can think of a 529 kind of like a Roth IRA in that you contribute post-tax dollars and the growth is tax-free. If the time from contribution to withdrawal isn't very long, the growth won't be very much, so the benefit from doing this maneuver is pretty limited.

The one exception would be if you live in a state that gives a state tax deduction on your 529 contributions. In this case contributing to the 529 and taking the money right back out again to pay for that year's tuition can pay off a little bit.

nereo

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Re: How do 529s work?
« Reply #2 on: April 16, 2019, 05:14:45 PM »
If I were to put money in a 529 to use for private online school, is that allowed?

Yes, provided the school is accredited.

Can I put the money in one week and use it for tuition the next?
Yes, but this would likely be no different from just putting it in your checking account, as contributions are post-tax. 

The real benefit is tax-free growth (no capitol gains taxes). Sizable growth only occurs (generally) on the time frame of years.

Buffalo Chip

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Re: How do 529s work?
« Reply #3 on: April 16, 2019, 05:37:18 PM »
If I were to put money in a 529 to use for private online school, is that allowed? Can I put the money in one week and use it for tuition the next?

Depending on your state, that might be a good tax strategy if contributions are deductible on state income taxes.

nereo

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Re: How do 529s work?
« Reply #4 on: April 16, 2019, 05:40:12 PM »
If I were to put money in a 529 to use for private online school, is that allowed? Can I put the money in one week and use it for tuition the next?

Depending on your state, that might be a good tax strategy if contributions are deductible on state income taxes.
Hmm.  I had not considered state tax deductions. 

Buffalo Chip

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Re: How do 529s work?
« Reply #5 on: April 16, 2019, 07:34:18 PM »
If I were to put money in a 529 to use for private online school, is that allowed? Can I put the money in one week and use it for tuition the next?

Depending on your state, that might be a good tax strategy if contributions are deductible on state income taxes.
Hmm.  I had not considered state tax deductions.

It can be a significant sweetener. Within the contribution limits itís essentially like a Roth IRA for education with a state tax deduction or credit for those contributions. Nice ROI for the first year.

Aunt Petunia

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Re: How do 529s work?
« Reply #6 on: May 10, 2019, 06:22:40 AM »
My state stipulates that you don't get the deduction on the amount that you take out that year. You can deduct the difference if you put in more than you take out.