Tax-advantaged accounts or other steps when enrolling in grad school

[vickx038]

I'm planning on enrolling in a full-time, one year graduate degree program beginning this May which will end in May 2018. I'm trying to evaluate if there are any steps I can take in the next couple months to prepare for this financially in a tax-advantaged way. I currently have income of ~$120K and max out contributions to traditional 401K and roth IRA, then contribute to taxable index fund account up to ~55% of my income. I'm a single filer come tax time who takes the standard deduction. Given the full-time nature of the program, I expect my income to be ~$55K this tax year.

I'm mostly curious to understand if there are any near-term contributions I can make to a 529 or other savings account that would be meaningful, along with potential strategies for handling health insurance (which I may need to post on separately since intertwined but distinct from taxes).

[seattlecyclone]

A 529 isn't that great for school you plan to pay for before the middle of next year. It's only the growth that is tax-free, and over such a short timeline that won't amount to much. Perhaps your state offers a tax credit to make it more worthwhile, but otherwise I personally wouldn't bother. However you may wish to shift some of your investments to bonds to minimize risk of volatility over the next year when you'll want to pay for the schooling.

Looks like the Lifetime Learning Credit starts phasing out at $55k of MAGI for single filers. That phaseout can act as an extra 20% tax on income between $55k and $65k, assuming you have enough expenses ($10k) to qualify for the maximum credit. If you think you have any chance of going over $55k, consider making traditional IRA contributions instead of Roth, at least enough to keep you below that line.

[moof]

The one caveat is that a few states allow state income taxes to be deducted.  So here in Oregon I can deduct up to $4620 of 529 contributions to avoid the 9% state income tax on it.  Doing that for just one year's contributions doesn't save you much.

[GizmoTX]

For health insurance, check what your university may offer. Our son is finishing his master's degree this May after getting his undergrad degrees last May, & has BCBS PPO coverage through his university after his individual plan was cancelled every year due to Obamacare 'improvements'. (Since we are Medicare age, he can't be on our insurance.) His university premium cost is reasonable & has a low deductible, good anywhere in the world, and he keeps his doctors (BCBS-TX now only offers HMO plans).