529 - guaranteed return - too good to be true ?

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curious george
Posts: 84
Joined: Sat Jul 27, 2013 11:24 pm

529 - guaranteed return - too good to be true ?

Post by curious george »

Hello

I was just pondering if one was to have kids in or about to go college, instead of paying (or helping with tuition) directly to the university, why doesn’t everyone simply open a 529 and fund the 529 account. Then go ahead and take the state tax deduction and then pay tuition with the 529 account ?
I imagine any funds designated for near term use would not be invested and so if the funds are just sitting in cash or cash equivalents - why not ?

This seems like a good way to get a decent return without much risk.

What am I missing ? :confused
codedude
Posts: 69
Joined: Thu Jan 26, 2017 9:15 pm

Re: 529 - guaranteed return - too good to be true ?

Post by codedude »

curious,

You are not missing anything. Make sure your 529 plan allows immediate withdrawal. I am planning to do this if there is a shortfall in 529 funds. Mine (Virginia 529 Invest) allows such withdrawals.

codedude
thx1138
Posts: 1129
Joined: Fri Jul 12, 2013 2:14 pm

Re: 529 - guaranteed return - too good to be true ?

Post by thx1138 »

curious george wrote: Sun Apr 01, 2018 12:14 pm Hello

I was just pondering if one was to have kids in or about to go college, instead of paying (or helping with tuition) directly to the university, why doesn’t everyone simply open a 529 and fund the 529 account. Then go ahead and take the state tax deduction and then pay tuition with the 529 account ?
I imagine any funds designated for near term use would not be invested and so if the funds are just sitting in cash or cash equivalents - why not ?

This seems like a good way to get a decent return without much risk.

What am I missing ? :confused
Not missing anything really. Exactly what one should do if you get a state deduction for the 529. Be careful to understand your specific state tax laws though, there is a chance they might have restrictions on simultaneous contributions or withdrawals or some similar “claw back” of deductions depending on the timing of events.
CppCoder
Posts: 920
Joined: Sat Jan 23, 2016 9:16 pm

Re: 529 - guaranteed return - too good to be true ?

Post by CppCoder »

It doesn't work in all states (not all states offer state income tax deductions, not all states even have state income taxes), but where it works, go for it. In addition to checking that immediate withdrawals are allowed, be aware that the state probably caps the deductible amount as well.
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