Stuck with big losses in your 529 account this year?
The Wall Street Journal reports on a way you may be able to deduct these losses. But be forwarned: there are many caveats, especially if your state offered up front tax benefits for your contributions. And if you child isn’t going to school in the next year or two, do you really want to withdraw funds from your 529 account with stock prices are this low?
Here’s the explanation, in part:
Imagine a couple that put $120,000 into a 529 tax shelter for a grandchild a year ago. If the market had continued to boom, that money would have grown tax-free. As long as it was eventually spent on qualified tuition expenses, no tax would have been paid on withdrawals. These 529 plans are terrific tax shelters for middle-class couples with children or grandchildren.
Obviously, though, investing has been a hazardous occupation of late. Imagine that same couple now looks at the 529 and realizes those investments have plunged to just $70,000 in value.
Yikes. That’s a $50,000 loss.
The couple can close the account and withdraw the money. At that point, they may be able to deduct nearly all of that loss from their taxable income. That wouldn’t restore all the money lost, but could at least soften the blow.
Many Americans may be missing out on this deduction. Most 529 plans are sold through financial advisors, but comparatively few know about this rule. (For those seeking more details, they can be found in IRS Publication 970, Tax Benefits for Education, page 51, and in the Federal Register, Vol. 73, No. 13, page 3445.)
The price of joining the Virginia pre-paid college tuition plan is going up 10%, reports the Richmond Times-Dispatch.
Blame sagging investment returns and rising college costs.
The cost of a lump-sum contract to lock in four years of tuition at a state-supported college or university for the parents of a kindergartner will increase from $39,944 last year to $44,060 during the new enrollment period, which runs from Dec. 1 to Feb. 28. In comparison, the state raised prices 7 percent last year and 8 percent two years ago.
The 10.3 percent increase this year is in part to shore up the program’s reserve, which fell below its 10-percent standard to 9.2 percent.
The treasurer of Nebraska has announced that OFI Private Investments (OFIPI), a subsidiary of OppenheimerFunds Inc., will become the new investment manager and service provider for the State Farm College Savings Plan, previously managed by Invesco Aim Capitol Management, Inc. and Invesco Aim Distributors, Inc. OFIPI will act as the investment manager for the State Farm College Savings Plan, which has $120 million assets under management.
You can learn more about the Nebraska State Farm College Savings Plan here.
Investments in 529 college savings plans seem to be declining as people worry about stock market losses.
This is a dumb move. Why you would contribute funds when the Dow was at 14,000 and not when it’s at 9,000 is beyond me.
But you need to be smart about it. If your kid is going to college in less than 5 years, most of your money should be in low risk investment options. Most 529 plans offer age-based plans that keep more of your money in less risky options such as bonds when your child gets closer to college.
Also keep in mind that your kid will be in college for about 4 years. So if your kid starts college in 5 years, the average time you have to keep your money in your 529 plan is another 7 years. 7 years is a long time in the stock market. After all, the stock market is currently at 5 year lows. It has gone up and dropped back down in a period of just 5 years.
If your state offers upfront tax deductions for contributing to 529 plans, then you have all the more reason to contribute. Scared about investing in stocks? Then just buy the low risk options in the 529 plan. They may only return 1-3% per year, but if you get an upfront tax deduction you’ll be laughing all the way to the bank.
With the stock market hurting everyone’s 529 plan, it’s nice to be able to do something to make your 529 go up.
FreshmanFund.com is offering up to 100 people a $5 gift certificate to FreshmanFund. You can transfer this to your 529 plan.
For details on how to get your certificate, visit:
http://529s.com/freshman-fund-gift-certificate.html