Certified Financial Planner Aaron Grey was our guest. Grey says a frequently overlooked feature of the Colorado CollegeInvest 529 College Savings Plans allows parents of college students to get a state tax deduction on qualified higher education expenses by simply routing the money through a 529 account.
The most widely known benefit of 529 plans is the tax free growth of assets over time according to Grey. He believes this makes 529 plans especially appealing to parents of young children that plan to save incrementally throughout childhood for future college expenses. On the other hand, Grey points out many parents of college age kids feel like the advantages of 529's have passed them by since the tuition bills are already arriving and the money doesn't have much time to grow.
However, Grey believes CollegeInvest 529 Savings Plans have a second tax advantage that can make a big difference for Colorado residents. Contributions to CollegeInvest 529 Plans are Colorado state tax deductable. While this is a nice bonus for parents that are saving bit-by-bit over time, it can turn into significant tax savings for parents that are paying for college out of current income or personal savings.
The concept is pretty simple he believes. Say you know that you will have $10,000 in qualified college expenses due in early January and you have money socked away in a personal savings account to cover the bill. Rather than pay the expenses directly out of the savings account, you could deposit the $10,000 into a CollegeInvest 529 Plan to capture the state tax deduction then turn around and withdraw the money to cover the qualified education expenses a few weeks later. The same money pays the same bills but routing it through the CollegeInvest 529 plan qualifies the expenses to be deductible on your state tax return.
Final tip from Grey: There are many versions of CollegeInvest 529 Savings Plans available. If you plan to contribute then withdraw funds within a short time period, you may want to avoid using versions that include initial or deferred sales charges and/or short-term redemption penalties.
For more information, check out the CollegeInvest website or contact Grey at email@example.com
Consult a Certified Public Accountant about your eligibility for tax deductions. This article if for informational purposes only and does not represent individual advice.
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