Last-Minute Investing in a 529 College Plan

Are 529 plans only for younger children?

Not by a long shot. Many parents with college-bound teenagers, however, assume that their days of contributing to a 529 plan is over. By this time, parents are beginning to drain their 529 plan.

You could save a bundle in taxes, however, if you continue to contribute to a 529 savings plan — if only for a few days.

A college blog post that I wrote for CBSMoneyWatch explains this nifty way that parents can indirectly save on college costs by investing temporarily in a 529 college plan. Here’s my explanation:

Capturing A College Tax Deduction

Parents, who are on the verge of writing a check for college costs, can often capture a state tax deduction worth hundreds or thousands of dollars by dumping this college cash into a 529 plan for as little as 24 hours. Once the money is in the 529 account, you can contact the plan and ask for a disbursement to pay for your child’s college tuition and other related expenses.

Most states offer tax deductions for their 529 college plan and they don’t stipulate how long the money needs to sit in an account. According to FinAid 32 states and the District of Columbia offer full or partial state income tax deductions for 529 plan contributions.

The Vanguard Group, which is a major 529 plan player, has gotten requests from savvy 529 plan investors, who ask for disbursements right after they’ve made contributions, says John Heywood, a Vanguard principal, who is in charge of the firm’s 529 plan operations. “If you make a contribution today, we can disperse it in a couple of weeks,” he says.

Before investing in a 529 college plan for a day or two, check with your state plan to make sure it hasn’t imposed a waiting period for contributions to qualify for state tax deductions. There might be a couple of states, Heywood says, that impose a one-year waiting period.

You can find the list of states that offer state 529 tax deductions at FinAid.org.

Lynn O’Shaughnessy is the author of The College Solution and she also writes college blogs for CBSMoneyWatch and US News & World Report.

More from The College Solution:

10 Ways to Shrink the Cost of College

Where Professors Send Their Children

4 Ways to Check Out Colleges and Universities

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2 Responses to Last-Minute Investing in a 529 College Plan

  1. Tom September 29, 2011 at 6:21 pm #

    Questio for your conference:

    We hear about college financial officers being able to exercise “professional judgement” when making an award to a student but in reality, how often does this actually take place and in what circumstances?

    • Lynn O'Shaughnessy September 29, 2011 at 6:32 pm #

      Hi Tom,

      It’s impossible to say how often financial aid officers exercise professional judgment when making awards. I’d suggest that a family’s chances of getting more financial aid will depend in large part on how much a school wants that teenager. If the teenager is not in the top 25% of the incoming class, your chances probably aren’t great.

      Lynn O’Shaughnessh

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