Solutions 4 Financial Independence: 10/02/18
Question: Today's question comes from Laverne from Weston. My child attends a private school, I recently heard from another parent, that if I contribute to a 529 college savings plan, that I would be able to get a tax deduction for the money, and use it to pay for school. This sounds wonderful, but is it true?
John Halterman Answer: Hey Laverne, I get it. Sometimes things seem to good to be true and a 529 plan is not one of those things. 529 plans originally started out for college savings, but most recently, they've actually expanded the rules. So, it is true that you would get a tax deduction, but understand that it is a state tax deduction, its not a federal tax deduction. The second thing that you have to understand, is that you have to use the Hartford 529 plan in order to get a state tax deduction, because each state has its own plan, and then the third thing is that it is tax-free as long as you use it for eligible schooling. Private schooling, and elementary and high school and college is now tax-free. So, it's definitely something we're doing all the time. I would recommend that anybody consider this as an option that has to pay for any form of education. Now, understand what the tax-free means, your earnings on that plan, say that you contribute $10,000, it earns another 10, well those earnings, which is normally taxable in ordinary accounts, would be tax-free if you used it for qualified expenses.