College funding

[mrpaseo]

Hello peeps, it's been a few weeks since my last post though not much has happened in my life. Still doing house projects and enjoying the "unemployed" life.

I am happy to report my daughter was accepted to her College of choice and will begin next fall. This caused me to revamp our budget and alot more funds towards college. This leads me to this post.

We currently have an education IRA and a 529 account. The current balances will get her through the first year and part of the next so we have decided to save $500 a month towards her future years. My question is, where should I save the money?

Let's say I start next month (The current plan). Should I put the money into one of the accounts mentioned above, or would it make a difference? Should I just save it in my Money Market account/checking account.

Thanks for your opinions

[feh]

Hello peeps, it's been a few weeks since my last post though not much has happened in my life. Still doing house projects and enjoying the "unemployed" life.

I am happy to report my daughter was accepted to her College of choice and will begin next fall. This caused me to revamp our budget and alot more funds towards college. This leads me to this post.

We currently have an education IRA and a 529 account. The current balances will get her through the first year and part of the next so we have decided to save $500 a month towards her future years. My question is, where should I save the money?

Let's say I start next month (The current plan). Should I put the money into one of the accounts mentioned above, or would it make a difference? Should I just save it in my Money Market account/checking account.

Thanks for your opinions

Is there a reason you wouldn't want to put it in the 529? That keeps any gains tax-free and could qualify you for a tax credit, depending on your state.

[mrpaseo]

Well, because I will be drawing on the money within a year to a year and a half. What do you mean tax credit?

[TBH]

Some states (including mine) allow you to put pre-tax money into a 529. So if you put $500 a month in, that would reduce your taxable income at the state level only by $6,000. Doesn't impact federal tax liability.

If you don't live in a state where 529 contributions are pre-tax, I wouldn't bother. I'd just keep it in cash.

Congrats to your daughter on getting into her first choice school. That's fantastic.

[feh]

Well, because I will be drawing on the money within a year to a year and a half. What do you mean tax credit?

As TBH answered above.

Would you invest the money inside the 529? If so, any gains would be tax free. If you're just gonna park it in a money market, then it doesn't matter.

[mrpaseo]

As TBH answered above.

Would you invest the money inside the 529? If so, any gains would be tax free. If you're just gonna park it in a money market, then it doesn't matter.

I looked up what our 529 earned this year... -.03%... I'm not seeing any earnings savings but I will look into the tax deduction. Thanks.

[disneysteve]

I agree with the others. If you get a deduction, park it in the 529. If not, don't bother. Our daughter starts college next year. We don't get a deduction so I will stop funding the account when she starts and just cash flow everything from then on.

[moneybags]

Don't forget to coordinate your 529 withdrawals with your education tax credits, it can be complicated.

http://www.finaid.org/savings/taxbenefitcoordination.phtml

[disneysteve]

Don't forget to coordinate your 529 withdrawals with your education tax credits, it can be complicated.

http://www.finaid.org/savings/taxben...dination.phtml

Thanks for pointing this out. I didn't realize the intricacies of what to draw from when. I will definitely schdule an appointment with my accountant to work this out.

[jIM_Ohio]

Hello peeps, it's been a few weeks since my last post though not much has happened in my life. Still doing house projects and enjoying the "unemployed" life.

I am happy to report my daughter was accepted to her College of choice and will begin next fall. This caused me to revamp our budget and alot more funds towards college. This leads me to this post.

We currently have an education IRA and a 529 account. The current balances will get her through the first year and part of the next so we have decided to save $500 a month towards her future years. My question is, where should I save the money?

Let's say I start next month (The current plan). Should I put the money into one of the accounts mentioned above, or would it make a difference? Should I just save it in my Money Market account/checking account.

Thanks for your opinions

Ask your CPA, this is a tax question, whether you know it or not.

Do you qualify for any of the education credits, like American opportunities? If so, I would avoid the 529 and IRA.

[jIM_Ohio]

Is there a reason you wouldn't want to put it in the 529? That keeps any gains tax-free and could qualify you for a tax credit, depending on your state.

529's give a tax deduction
a tax credit is a much different subject

[MonkeyMama]

529's give a tax deduction
a tax credit is a much different subject

You can get either a tax credit or a tax deduction, depending on the state. Many states give neither.

[mrpaseo]

Ask your CPA, this is a tax question, whether you know it or not.

Do you qualify for any of the education credits, like American opportunities? If so, I would avoid the 529 and IRA.

Hmmmm... I have never used a CPA.