I was talking to a friend recently and had an epiphany about 529’s. A 529 is a educational investment account and contributions to it are tax deductible at the state and sometimes federal level. It a pretty powerful way to save and invest for college expenses, but I’ve come to understand that it is also a good tax hack if you or your spouse is still in college now.
How a 529 Can Help
My friend and I both have wives that are still working on getting their degrees online. With kids in the picture, it’s just 1 or 2 classes at a time. Our wives are both doing 3 semesters a year. I think this is a situation many find themselves in, where one spouse graduates college but the other is still working on it. This may even apply to people who go back to school in their 30’s or later.
Most people think 529’s are just for their children’s future college education. Turns out they have wider application than that. There is no reason why my friend and I can’t open up a 529 for our wives and funnel money through there. I did some research and my state has no age limit on 529’s. There are no residency, time or age restrictions. The fees are low and there are no minimums. You just have to be 19 or older. Other states I checked all seemed pretty similar but it just depends. I found this site helpful, pick your state and get educated.
It makes sense if you’re going to pay for tuition anyway, just pipe it through the 529 first and pay tuition from there. Most states consider this tax deductible, and some states also have a deduction at the federal level. Funds in the 529 can be invested aggressively or conservatively, and if there is still money left over, it can be used for your kids.
If you find yourself in a situation where you or your spouse are going to school, consider getting a 529. If you have some cash set aside for tuition, take advantage of the tax deduction if possible. Many states limit the tax deduction to the first $5,000 contributed, so a little research goes a long way.