Does it make sense to open up a 529 Savings Plan?

Question

Just got accepted into B-school and was wondering if it would make sense to open up a 529 savings plan. I'm located in NY and according to the website:

If you're a New York State taxpayer and account owner, you may be entitled to a generous state income tax deduction of up to $5,000...

https://uii.nysaves.s.upromise.com/cont ... efits.html

Not sure if it would make sense right now to open one up, contribute $5000 and write it off on my taxes to save some money.

Anybody have any insight?

bb · Answer

Interesting. This is where different states have different rules. From the federal tax perspective, 529 contributions are not tax deductible but NY state does allow you per the link you provided. Which is very cool. After this point I would talk to a tax professional just in case there are some mechanisms that discourage people to contribute to plans for almost immediate withdrawals but otherwise you may be able to save about $300 on the tuition expenses a year (assuming 6% tax rate). And that could be done over 3 years which is almost $1K.

Any tax experts?

Posted from my mobile device.

Any tax experts?

Posted from my mobile device.

UTMPA2011 · Answer

I don't see a problem with it. You should contact the administrator for the NY 529 plans and run your idea by them. You should also consider (ask about) any fees related to doing what you have described.

- Tax Accountant

MiloX · Answer

Anybody else care to shed some light into this matter?

dave785 · Answer

One of the unfortunate things about working in personal finance is that the people who are most qualified to answer questions like this are prohibited from doing it in a public setting because it would be a different answer for each reader, depending on their circumstances.

I will say this though:
1. in some situations it is possible to prefund up to 5 years of 529 contributions at once (70k)
2. Consult with your financial specialist about how a 529 would affect your financial aid, loans and/or need based grants.

There are some situations in which money in a 529 does not count against the beneficiary as much as if the money was in a standard account type.
On the other hand, there are some situations in which throwing money into a 529 (or doing a rollover) would be looked at as additional income or cash flow that, while you wouldn't have to pay extra taxes, might hurt your chances of qualifying for aid.

Also, fees inside of a 529 are important to consider... And the there are the investment options or leaving it as cash.

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Does it make sense to open up a 529 Savings Plan?

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