quote:
You can save a lot of money putting that money aside in a 529 for education purposes and even if said kid doesnt go to college (or you pay private school tuition out of it) you can just roll the money into a IRA over time without penalty. It's really a no brainer to me especially with the IRA rule now.

Only up to $35k and it counts against the beneficiary’s annual limits. Also has to be open for 15 years and contributions within 5 years of the first distribution aren’t eligible for rollover.

quote:
GA I can deduct up to $8000 a year on contributions to the 529 on my state tax owed (which is at 5.75%). We contribute $200/mo right now so $2400 * .0575 = $138/yr in State tax savings. Once our kid is in college, anything we take out to pay for that is tax free, including all that growth over the years. If we continued to do $200 for 18 years (it will go up over time) we would have over $100k after 18 years and the majority of that is growth at 9% annual RoR. That's a f*ck ton of tax savings as opposed to just throwing that in a brokerage account over the same time.

It’s obviously state dependent, I’ll give you that, but there are so many ways to pay for college that the minimal tax savings and potential penalties offset the benefit for many people in my experience.

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Posted by thunderbird1100

GSU Eagles fan

Member since Oct 2007

68684 posts

Posted on 2/28/24 at 8:36 pm to slackster

quote:
Only up to $35k

This will go way up over time

quote:
It’s obviously state dependent, I’ll give you that, but there are so many ways to pay for college that the minimal tax savings and potential penalties offset the benefit for many people in my experience.

Again with the new IRA rule I dont really see why it scares anyone anymore, there's a clear alternative if no college. And its definitely not "minimal" tax savings when you're talking about huge growth money being taken out tax free to pay for educational expenses. Using my example, over $60k of the over $100k is growth. I can take that $60k growth out completely tax free to pay for school. If that money was sitting in a brokerage account even if it was ALL long term capital gains $60k taxed at 15% is $9k in federal tax. Thats a gigantic amount of tax savings. This doesnt even include the state tax I'm saving every year which after 18 years amounts to another $2,500 as well. Thats well in excess of 11 grand of tax money I dont have to pay with it in the 529 instead of just letting it ride in a taxable brokerage account.

And in the end if she doesnt go to college we just roll this money into a ROTH IRA year after year for her once shes 18/19 and she'll retire with a nice nestegg as a result just from that.

There's also a scholarship clause for 529s where the penalty is waved for cashing it out if the school is paid for via scholarship.

This post was edited on 2/28/24 at 8:42 pm

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