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Should I Stop Contributing to a 529 Plan When My Child Enters College?

Jun 14, 2012

When your child enters college it makes sense to stop contributing to a 529 college savings plan, right? Think again there are reasons to keep on putting money in.

Ask yourself, are you fully funded for your child's college education? Do you have enough in there to make it four years? If not keep on contributing.

Even if you decide it's time to stop there is another way your 529 account can save you a little money. Even if you have used up all your 529 money you can still capture your states tax deduction by dumping the college cash cash into the 529 plan for 24 hours. After 24 hours withdraw it and use it to write a check for a college expenses.

It's seems wrong but it can save you money. Most states offer tax deductions for there 529 college plans and they do not say how long the money has to stay in the account. According to FinAid.org, 32 states and the District of Columbia offer full or partial state income tax deductions for 529 plan contributions.

The Vanguard Group reports that smart 529 savers have asked them to disburse the money immediately after they have deposited it. But Vanguard has said there policy states the money has to stay in the account a couple of weeks before it can be disbursed.

If you are thinking of trying this technique be sure check with your state plan to make sure if it hasn't imposed a waiting period for contributions to qualify for deductions.

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