• Treavor Dodsworth

#93 - To 529 or Not 529 - Part 3


To 529 or Not 529 - Part 3

This is the last post in a series on 529 accounts.


In the first post, we discussed how you can use variables specific to your situation to determine whether a 529 is a useful savings vehicle. In the second post, we discussed the flexibility of a 529 and some less common uses. Today, I wanted to explain how a 529 can be used to generate current tax savings even if you are not investing in the account at all.


Given that a 529 could be used for qualifying expenses all the way from Kindergarten through graduate school (and even beyond), there is the possibility that a student may have eligible expenses for close to 20 years.


In Indiana, there is a 20% state tax credit on contributions up to $5,000 to the Indiana CollegeChoice 529 Education Savings Plan ($1,000 max tax credit). Instead of just paying for these 20 years of expenses directly, if you used the 529 you could potentially save $20,000 ($1,000 per year) in state taxes by putting $5,000 into the 529 and then using that 529 contribution for eligible expenses.


Indiana does have one of the, if not the, best 529 state tax benefits therefore depending on your state it may or may not be worth pursuing. Also, you will want to make sure there are no specific state laws that would prohibit this. For example, in Indiana, if the 529 account is closed within 12 months after opening the tax credit may have to be repaid. You can read more about Indiana's 529 laws here. You should also evaluate the impact on financial aid and scholarships if any.


Any time you are paying any expense that you think there is the remote possibility of it being a 529 eligible expense you should review and determine if it is financially beneficial to pay through the 529 instead.

Interesting Article(s) or Video(s)

IRA Help - How the Once-Per-Year Rollover Rule Is Misunderstood

  • With personal finance, education can pay huge dividends. In my personal opinion, Ed Slott and IRAHelp are the experts on all things IRAs. In this article, Ian explains some nuances of the once-per-year rollover rule.

Thank you for reading!

Thanks! Message sent.

All written content on this website is for information purposes only. Opinions expressed herein are solely those of Sycomore Financial, unless otherwise specifically cited.  Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. The owner of this website takes great care to thoroughly research the information provided to ensure that it is accurate and current. Nonetheless, the content on this website is not intended to provide tax, legal, accounting, financial, or professional advice, and readers are advised to seek out qualified professionals that provide advice on these issues. All information or ideas provided should be discussed in detail with an advisor, accountant, legal counsel, and/or other pertinent professionals prior to implementation. In addition, the owner cannot guarantee that the information on this website has not been outdated or otherwise rendered incorrect by subsequent new research, legislation, or other changes in law or binding guidance. Neither Sycomore Financial or it's owner shall have any liability or responsibility to any individual or entity with respect to losses or damages caused or alleged to be caused, directly or indirectly, by the information contained on this website. In addition, any advice, articles, or commentary included on this website do not constitute a tax opinion and are not intended or written to be used, nor can they be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Any mention of an investment product or solution is not a recommendation to buy or sell. ETFs that are mentioned may not accurately reflect the market segment mentioned. Past performance is not a guarantee of future results.