By Robert Trishman, Editor for my529
April 1, 2020
New cellphone, overdue car repair or outstanding debts? You may already have plans for your tax refund when it arrives.
But, today being April 1, a “Fools”-proof way to spend your refund from Uncle Sam would be to put all or some of it in a 529 account. A 529 plan is already tax-advantaged, as earnings on the account are tax-deferred, and withdrawals are exempt from federal and state taxes when used for qualified higher education expenses.
Also, many states have deductions or tax credits available for deposits to 529 accounts. Last year’s contributions to a 529 may be the reason you have a bit of extra money in your state tax refund, and you can cycle it right back in. Yes, that means you may also be able to get a state tax credit the following year from the state tax refund money you contributed to your 529 account. And so on and so forth …
It’s a way to pay forward to your children’s educational future. When investing for higher education, every dollar counts, and each one is a dollar less that you will have to pay back in the form of student debt.
At tax time, you reflect on where the money went. It’s also a chance to re-evaluate short and long term financial goals, an ideal season to determine whether to give more to a 529 account, or to start saving by opening an account if you don’t have one. And using your tax refund is a great way to do either!
The federal government has extended the 2019 federal tax filing deadline to Wednesday, July 15, 2020. Check with your state for the latest information regarding possible extensions on state filing of personal income tax.
About the author:
Robert Trishman is an editor for my529. my529 is Utah’s official nonprofit 529 educational savings plan. It is the nation’s third-largest direct-sold plan with over 400,000 accounts and billions in assets under management. my529 has been helping families across the United States invest for higher education for more than 20 years. Accounts are free to open and require no minimum deposit.