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Originally Posted by jIM_Ohio
I am looking for a way for the contributions to be pre-tax, if at all possible.
If I get a deduction NOW, I am more likely to do it. If I am restricted how the money is spent later, I want a deduction now. If there are fewer restrictions on back end (no 10% penalties), then I could contribute post tax.
But why contribute post tax to pay a 10% penalty (that money was already taxed) if education is not in the cards for the child?
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jIM_Ohio,
The 10% penalty is on the earnings, not the contributions.
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Earnings on withdrawals not used for qualified higher education expenses may be subject to federal income tax and a 10% federal tax penalty. As with all tax-related decisions, contact your tax advisor.
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College Advantage
Another factor to consider is if you took a state tax write off on the contributions, you may have to add it back into state income for non qualified expense:
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$2,000 Ohio state tax deduction
CollegeAdvantage is the only 529 college savings program that allows Ohio taxpayers to deduct their contributions from Ohio taxable income. Each contributor (or married couple) can deduct up to $2,000 per beneficiary, per calendar year, with unlimited carry forward in future years.
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CollegeAdvantage 529 plan FAQs