529 Savings Account

[dovy2]

Thought to open a new thread, to split off from the retirement funds thread.

My situation:low-income, not paying any taxes (only getting, bh this year a lot ) and I'm looking at tax deferred options, . after maxing Roth IRA (this year and last year, me and DW), I BH still have a few k left this year to put away.
401k is not really for me, cuz I'm not getting anything matched.
I was looking into 529 education account, and like the Roth, seems like a no-brainer, even for medium-length investment (say 10-15 years).
Any disadvantages that I'm missing? Like, if the money can be used for any of my kids tuition at any time, what chisaron is there (besides the obvious risk of stock market crashing)?

[bubkiz]

Are you self-employed or own a business w/o employees?

[bhoaem]

In NJ if you qualify you can get $750 match for your first $750 invested per account. Only through the states program. BestNJ.

[skyguy918]

Like, if the money can be used for any of my kids tuition at any time...

Don't know which state you're in, but keep in mind that NY and NJ do not consider K-12 tuition qualified expenses. So you'd pay state tax on the gains when you withdraw, and would be subject to recapture of any deduction/credit for contributions.

[ckmk47]

Don't know which state you're in, but keep in mind that NY and NJ do not consider K-12 tuition qualified expenses. So you'd pay state tax on the gains when you withdraw, and would be subject to recapture of any deduction/credit for contributions.

NY, and I assume other states, it's easy to change the beneficiary to another kid or even kid in law or grandkid.  Can be used for any advanced degree expenses. Computer course, education classes, etc.  So you're likely to use it somehow.  And compounded earning over a long period adds up.

[Euclid]

NY, and I assume other states, it's easy to change the beneficiary to another kid or even kid in law or grandkid.  Can be used for any advanced degree expenses. Computer course, education classes, etc.  So you're likely to use it somehow.  And compounded earning over a long period adds up.

NJ too

[skyguy918]

NY, and I assume other states, it's easy to change the beneficiary to another kid or even kid in law or grandkid.  Can be used for any advanced degree expenses. Computer course, education classes, etc.  So you're likely to use it somehow.  And compounded earning over a long period adds up.

The point is you can't start using it until the first kid graduates high school.

I mention that because it was a while tumult in 2017 when the federal government opened 529's up for K-12. People might think that's a viable use, but it's not in most states that Jews live in.

[Der Deutsche Jude]

Make sure you understand how it affects the kid’s eligibility for financial aid for college. I am not fluent enough to post advice but I have read that it can affect it differently depending on how it’s set up.

[Yonah]

Make sure you understand how it affects the kid’s eligibility for financial aid for college. I am not fluent enough to post advice but I have read that it can affect it differently depending on how it’s set up.

+1 on this - found this with a simple search - https://www.jhinvestments.com/viewpoints/college-saving/Does_having_a_529_account_affect_financial-aid#:~:text=529%20accounts%20that%20are%20owned,the%20value%20affecting%20financial%20aid.

IIRC - 529s work best when a grandparent creates them. If it is in your name (or the name of any of your kids) it counts as an asset and could potentially have an impact on certain types of financial aid like Tap and Pell grants when they get to college.

[Euclid]

The point is you can't start using it until the first kid graduates high school.

I mention that because it was a while tumult in 2017 when the federal government opened 529's up for K-12. People might think that's a viable use, but it's not in most states that Jews live in.

You can use it for k-12 in NJ

[pointer]

Don't know which state you're in, but keep in mind that NY and NJ do not consider K-12 tuition qualified expenses. So you'd pay state tax on the gains when you withdraw, and would be subject to recapture of any deduction/credit for contributions.

The point is you can't start using it until the first kid graduates high school.

I mention that because it was a while tumult in 2017 when the federal government opened 529's up for K-12. People might think that's a viable use, but it's not in most states that Jews live in.

Can be used for any advanced degree expenses. Computer course, education classes, etc.  So you're likely to use it somehow.  And compounded earning over a long period adds up.

In NJ you can use it for K-12!
https://www.njbest.com/njbest/resources/faqs



Additionally you get a state income tax deduction for contributions up to $10,000. (Income of $200,000 or less.)

[davidd75]

You can use it for k-12 in NJ

if it was set up as ny plan then I dont think you can

[davidd75]

In NJ you can use it for K-12!
https://www.njbest.com/njbest/resources/faqs



Additionally you get a state income tax deduction for contributions up to $10,000. (Income of $200,000 or less.)

where does it stay you are exempt from NJ state taxes?

[skyguy918]

In NJ you can use it for K-12!
https://www.njbest.com/njbest/resources/faqs



Additionally you get a state income tax deduction for contributions up to $10,000. (Income of $200,000 or less.)

I stand corrected. I hadn't checked NJ directly - was going off a link with a list and they didn't have NJ.

Apparently NJ only got their act together on 529 recently (like, last year) so you'd is good info to be sliding - people might not be aware.

[skyguy918]

where does it stay you are exempt from NJ state taxes?

Earnings from a  529 are always tax free if paid out as a qualified expense. Since apparently NJ is one of the states with K-12 as a qualified expense, earnings would be tax-free.

[Euclid]

I stand corrected. I hadn't checked NJ directly - was going off a link with a list and they didn't have NJ.

Apparently NJ only got their act together on 529 recently (like, last year) so you'd is good info to be sliding - people might not be aware.

I would've mentioned it earlier - but OP lives in NY IINM.

[AsherO]

Earnings from a  529 are always tax free if paid out as a qualified expense. Since apparently NJ is one of the states with K-12 as a qualified expense, earnings would be tax-free.

Isn’t this a no brainer for someone in NJ for paying your first $10k in tuition with pretax dollars? How soon after one first contributes could they have a qualifying expense?

[Euclid]

Isn’t this a no brainer for someone in NJ for paying your first $10k in tuition with pretax dollars? How soon after one first contributes could they have a qualifying expense?

It's not pretax dollars - it's just that the earnings aren't taxed. IIUC

[AsherO]

It's not pretax dollars - it's just that the earnings aren't taxed. IIUC

Meaning it doesn’t lower your AGI? Still a significant tax savings.

[skyguy918]

Isn’t this a no brainer for someone in NJ for paying your first $10k in tuition with pretax dollars? How soon after one first contributes could they have a qualifying expense?

It's not pretax dollars - it's just that the earnings aren't taxed. IIUC

Meaning it doesn’t lower your AGI? Still a significant tax savings.

For federal, it's definitely advantageous, but since it's only the earnings that are taxed advantaged, you need to leave it in long enough to have earnings.

For NJ state, I would say it is in fact a no brainer if you make below the threshold, as someone else posted upthread:

New Jersey taxpayers, with a gross income of $200,000 or less, may qualify for a state income tax deduction for contributions into an NJBEST plan of up to $10,000 per taxpayer, per year, beginning with contributions made in tax year 2022.

ETA: Plus the free $750 if you're below the even lower threshold for that:

New Jersey taxpayers with household adjusted gross income between $0 and $75,000 may be eligible for a one-time grant of up to $750. Program will match dollar-for-dollar of the initial deposit into an NJBEST plan for new accounts opened for new beneficiaries on or after June 29, 2021. Visit HESAA's site for terms and conditions and how to apply.