Possible to tax harvest from a 529 plan?

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indexfundfan
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Possible to tax harvest from a 529 plan?

Post by indexfundfan » Sun Jan 27, 2008 12:21 pm

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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Tax Loss Harvesting in 529 College Plan ?

Post by Taylor Larimore » Sun Jan 27, 2008 12:55 pm

since unqualified distributions from the 529 plan are taxable, is it possible to tax harvest from the 529 plan?
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.

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Taylor

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LH2004
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Re: Possible to tax harvest from a 529 plan?

Post by LH2004 » Sun Jan 27, 2008 12:58 pm

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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tax losses in 529 Plan

Post by Taylor Larimore » Sun Jan 27, 2008 1:19 pm

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
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Post by indexfundfan » Sun Jan 27, 2008 7:01 pm

Thanks LH2004 and Taylor. Doesn't sound like it is something I would do now.
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