Some Myths About the 529 Savings Plan

Hi All

As you are aware I am a big fan of planning ahead.  Here are five myths regarding 529 college savings plans and the correct information.

Myth #1 addresses how 529 savings are treated on the FAFSA

Clearing up the Confusion: Five Popular 529 Plan Myths

PS: WARNING, I’M GOING TO THROW A LOT OF NUMBERS AT YOU. 

 The American Opportunity Tax Credit is only for qualified educational expenses (tuition & fees and books).  If a family pays for up to $4,000 these they can qualify for up to $2,500 in tax credits.  So the net cost is $1,500.  If you have 529 savings you can use those for room and board as well as books, supplies and equipment.  Bonus, the Oregon 529 College Savings Plan is state tax deductible at 9%

Contributions made to accounts in the Plan are deductible up to an annual limit. The deduction limit is indexed annually for inflation. For 2013, the total allowable annual state tax deduction for contributions made by the taxpayer to all accounts in the Network (“Network accounts”), including all accounts in the Plan, is $4,455 for taxpayers who file a joint return and $2,225 for all others.

The bottom line is that with good planning a family can save ~$400 per year on Oregon state taxes by contributing to a 529 plan.  The funds grow and come out tax free.  While in college if they pay up to $4,000 in tuition and fees and they owe federal taxes they can qualify for up to $2,500 in tax credits.

I am contributing the maximum allowed by Oregon each year  for my grandson, Nathan.  I began when he was born and will contribute while he is in college, so 22 years of contributions.   I get the Oregon tax deduction each year.   His parents will pay the tuition and fees and books while he is in college and claim the American Opportunity Tax Credit.  The 529 funds grow and come out tax free.  Anyone like to calculate the potential tax savings?   Is it under or over $50,000?

Cheers, George

George A. Letchworth, Ph.D.

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