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Tax Savings For 529 Plans Even If College Has Started

College has already started and you may think that it’s too late to take advantage of tax savings for 529 plans. It looks like you’ve got a little rethinking to do. If you’ve been blessed with good geography, aka live in the right state, you could potentially save several hundred dollars (give or take) on your taxes.

Here’s a summary of how this idea can work for you. Assuming you have another college savings plan, the money from there is taken and moved into the 529 plan of your state. When the next college tuition bill arrives, it will be paid with the money from the 529 plans. By doing this, you can claim a tax deduction from your state income tax. The expense of college has just become a write off on your state income tax return. And just like that, you’ve received a tax savings benefit from your 529.

Not all states allow this 529 write off, so be sure to do your research. But the good news is that over fifty percent of the states and the District of Columbia will allow you to deduct all or part of your contributions. Rules do vary so be sure to check with your state or a tax professional for more details. For example, three states- Kansas, Maine and Pennsylvania, even allow residents to deduct their contributions to out of state plans as well. The tax savings could be several hundred dollars so it is very well worth the effort of doing your homework. Also, be aware that there are a few states that will require the funds to be held in the 529 plans for a minimum time period.

It is important to choose the right administrator for your plan. By making such an immediate payment to the college, the transaction costs in creating the account will probably be greater than the amount of money that the account will generate. So not all plan providers love this sort of quick transaction. But a good administrator will help you find all the tax benefits.

The state tax department loses revenue with transactions like this so who can tell what sort of changes in policy could be made. The rules governing those write-offs may be changing soon. And many of the plan managers could change over the next few years, since some 60% of state contracts with their current 529 providers are set to expire by 2010. This is why it is so very important to check with your accountant or tax professional regarding the 529 plan rules in your state.

Parents, grandparents, other family members, friends or anyone can establish a 529 plan. You can even establish one for yourself. Since there are no age restrictions, it’s never too late to open a 529 plan (named after its section in the IRS code). Funds are generally available for immediate use. And it’s easy to withdraw money from your fund. By filling out certain forms, you can even arrange for the money to be sent directly to the college. Take advantage of the tax opportunity while you still can. It’s only too late once you graduate because unfortunately, student loan payments don’t count. Of course, there’s always graduate school.

A few hundred dollars here and there can really add up especially during the college years. So what if college has started? Look for those state tax breaks with a 529 plan. Take advantage of the tax savings for 529 plans right now even though college has started and put a little extra green in your pocket.