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indexfundfan
Joined: 20 Feb 2007
Posts: 769
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 Posted: Sun Jan 27, 2008 1:21 pm Post subject: Possible to tax harvest from a 529 plan? |
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I think my 529 plan is slightly in the red. A thought came to my mind -- since unqualified distributions from the 529 plan are taxable, is it possible to tax harvest from the 529 plan?
This is more of an academic question (for now) and probably not worth the trouble even if it can be done.
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Taylor Larimore
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Joined: 27 Feb 2007
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| Posted: Sun Jan 27, 2008 1:55 pm Post subject: Tax Loss Harvesting in 529 College Plan ? |
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| Quote: | since unqualified distributions from the 529 plan are taxable, is it possible to tax harvest from the 529 plan?
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I am unaware of any IRS regulation that would allow you to tax-loss harvest in (or from) a 529 plan.
A 529 college plan is very similar to a Roth IRA: Contributions are not deductible; earnings are tax-deferred during accumulation; and withdrawals are tax-exempt. Tax-loss harvesting is not permitted within an IRA.
Best wishes.
Taylor |
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LH2004
Joined: 27 Mar 2007
Posts: 1745
Location: New York, NY
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| Posted: Sun Jan 27, 2008 1:58 pm Post subject: Re: Possible to tax harvest from a 529 plan? |
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| indexfundfan wrote: | | I think my 529 plan is slightly in the red. A thought came to my mind -- since unqualified distributions from the 529 plan are taxable, is it possible to tax harvest from the 529 plan? |
Yes. See "Losses on QTP Investments" in Publication 970. You'll be subject to the 2% of AGI floor, though, so you'll need to have really extreme losses, or a big account, or low AGI, or other miscellaneous itemized deductions to reach that floor.
Alternatively, under the IRS's new theory regarding wash sales, you could take the position that a sale of an individual portfolio in the 529 plan at a loss, followed by a purchase of a substantially identical fund in your taxable account, is a wash sale, increasing your basis in the newly-purchased fund, which you could then immediately sell at a loss; that would be an aggressive position to take. |
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Taylor Larimore
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Joined: 27 Feb 2007
Posts: 9535
Location: Miami Florida
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| Posted: Sun Jan 27, 2008 2:19 pm Post subject: tax losses in 529 Plan |
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Hi IndexFan:
Thanks to LH2004, I found this link that is the pertinent part of Publication 970.
http://www.irs.gov/publications/p970/ch08.html
Best wishes.
Taylor |
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indexfundfan
Joined: 20 Feb 2007
Posts: 769
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| Posted: Sun Jan 27, 2008 8:01 pm Post subject: |
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Thanks LH2004 and Taylor. Doesn't sound like it is something I would do now.
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