Contribute to 529 Plan?

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Contribute to 529 Plan?

Post by bonktown » Wed Dec 26, 2012 8:09 pm

It's getting close to the end of year and I am looking at ways of reducing my taxable income. I've maxed out my 401k and will contribute 5k to my Roth IRA. Would it make sense for me to contribute 5k to a 529 plan? I don't currently have kids but plan to in the future. The primary reason for me to contribute is for the 5k tax deduction (NY state). Would it make sense for me to contribute to this?

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Re: Contribute to 529 Plan?

Post by Majormajor78 » Wed Dec 26, 2012 8:33 pm

If you are sure you want to tie the money up, positive that you will eventually use it for education, and are very eager to save a few hundred dollars then by all means, open an account. Just be aware that the penalties associated with 529's make them a pretty unatractive tax shelter unless you use them for their designed purpose.
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Re: Contribute to 529 Plan?

Post by Grt2bOutdoors » Wed Dec 26, 2012 8:51 pm

If you aren't aware, NYS will clawback any tax deductions if you withdraw the monies from their 529 state plan for any reason other than to pay higher education expenses.
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Re: Contribute to 529 Plan?

Post by letsgobobby » Wed Dec 26, 2012 9:02 pm

I wouldn't fund a 529 without imminent plans to have kids. At least be actively trying to conceive.

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Re: Contribute to 529 Plan?

Post by NYBoglehead » Wed Dec 26, 2012 9:58 pm

I wouldn't do it before you have kids. I too am a NYer and would like to reduce my taxable income, but I think there are better decisions to be made than contribute to a 529 before you've got kids. Keep maxing out the IRA and 401k, if you've got extra cash but don't want to create taxable income (in the form of dividends or interest) it might make sense to purchase some munis in a taxable account.

You'll have plenty of time to contribute to 529s once the kids come, and right now in NY for MFJ you can deduct $10,000/yr for state income tax purposes.

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