Author Topic: Fund a 529 plan for yourself?  (Read 2898 times)

dividendman

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Fund a 529 plan for yourself?
« on: September 01, 2015, 10:44:01 AM »
I was reading up a bit here: Merrilledge.com/5benefits and it says under point 3

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3. You can use a 529 plan to fund your own education.

Funds in a 529 plan can be used at an accredited post-secondary institution - including technical or vocational schools - to help pay for higher education. And, anyone age 18 or older with a social security number and residing in the U.S. can open and fund an account. You can open an account for yourself, or open or contribute to one for someone else, including nonrelatives. It's a great way to pursue training for your current career or a new career for which you previously did not have the resources.

If that's correct... does this mean I can plow 14k (or whatever the limit is) into a 529, get the state tax and other advantages on the growth, even if I intend on never uses it for my education? Then I can just get tax free growth and some tax deductions potentially? Sure I'll have to pay tax if I don't use it for education... but this seems like a win. Better to defer the tax if possible. What am I missing here?

DEL

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Re: Fund a 529 plan for yourself?
« Reply #1 on: September 01, 2015, 01:52:53 PM »
That's what I did. Most people don't usually fund this for themselves because they expect to go to college in the next 3 or 5 years, which is relatively short-term for investments. Instead, they open it for their kids.
Still, I decided to put money aside this way; I plan to go for my Master's at some point. Obviously I am more diversified in bonds. And if life changes and I don't end up needing it, I can always pass it on to my future children.

Trudie

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Re: Fund a 529 plan for yourself?
« Reply #2 on: September 01, 2015, 06:19:29 PM »
I started one for myself and will plow more into it later when I've exhausted other tax-advantaged options.

When I'm in retirement it is quite possible that I will take a class here and there, probably at a tech school.  You can even do things like take  an "art history travel course" with a college or university and it will pay for that.

Read further... I think there are some rich options with the 529.

Also, make sure you're taking the Lifetime Learning Credit, as appropriate.  I took a work-related course this year.  I'm using the LLC for the first portion (20%), then the 529 for the balance.  You can't double dip, but the two benefits dovetail nicely.  You can read much more about it on the IRS website.

Jellyfish

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Re: Fund a 529 plan for yourself?
« Reply #3 on: September 01, 2015, 06:36:22 PM »
I believe that, to use 529 money yourself for educational purposes, you have to be enrolled at least half time, but then can pay not only tuition but also living expenses. If you withdrew for non-education purposes I think there is a 10% penalty plus taxes on the growth. This is from my memory based on when I researched my options so you should confirm.

Dan_at_Home

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Re: Fund a 529 plan for yourself?
« Reply #4 on: September 01, 2015, 09:35:53 PM »
Here is another use for funding a 529 for yourself.  For about 4 years I funded a 529 for myself in my 20s.  I did it in order to get money into the 529 account before our child was born.  Once your child is born, you can simply switch the beneficiary from yourself to the child's name.  It is a chance to give the account more years to take advantage of compounding in the market.

Also, I have also heard the same as Jellyfish, if you withdraw the funds from a 529 for non-educational purposes, you have to pay taxes on it and pay a 10% penalty.
« Last Edit: September 01, 2015, 09:38:20 PM by Dan_at_Home »

dividendman

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Re: Fund a 529 plan for yourself?
« Reply #5 on: September 01, 2015, 09:58:58 PM »
Thanks all, I'll look up the 10% penalty for non-education purposes.

As a follow up, does anyone know if the clubbing of 5 years of contributions to a 529 plan (so 70k of contributions) mentioned here:

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Contributing to a 529 plan also can help grandparents or others reduce the size of their taxable estates. They can even accelerate their gifting timetable by combining five years of 529 plan contributions of as much as $140,000 per couple (up to $70,000 for individuals) in one year, per beneficiary, using the annual gift exemption. Keep in mind that within the five-year period you would not be able to make any more taxable gifts to the beneficiary.

Is just avoiding the gift tax or does the entire 70k also get the state tax deduction?
« Last Edit: September 03, 2015, 11:07:02 AM by dividendman »

johnny847

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Re: Fund a 529 plan for yourself?
« Reply #6 on: September 01, 2015, 10:07:26 PM »
Almost all states will claw back the deduction you received previously if you do not use your 529 funds for educational expenses.

It's hard to come out ahead by investing in the 529 and paying penalties. It can be done, but it needs a really high difference in tax brackets of your working years and your retirement years.

Trudie

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Re: Fund a 529 plan for yourself?
« Reply #7 on: September 02, 2015, 11:28:51 AM »
I believe that, to use 529 money yourself for educational purposes, you have to be enrolled at least half time, but then can pay not only tuition but also living expenses. If you withdrew for non-education purposes I think there is a 10% penalty plus taxes on the growth. This is from my memory based on when I researched my options so you should confirm.

No, you do not need to be enrolled at least half time to use the funds to pay for a course or courses, but you do need to be be enrolled at least half time to use them toward any living expenses.  I would urge anyone to read the IRS guidance:
http://www.irs.gov/uac/529-Plans:-Questions-and-Answers
http://www.irs.gov/pub/irs-pdf/p970.pdf

MaggieDrsg

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Re: Fund a 529 plan for yourself?
« Reply #8 on: September 02, 2015, 06:40:50 PM »
dividendman/Herb,

Are you in California?  If so, there is no state tax deduction.  The tax treatment varies so you'd have to otherwise look into the state you'd be paying taxes to for the limit on tax deduction or tax credit available each year.