<p>Our state, a fairly high tax state, allows a deduction for up to $4000 contribution to a 529 plan. Would there be any pitfalls to making the contribution now and then taking it out in the fall to use for tuition? I think the deduction for someone in a 9% SIT bracket would have the effect of a rate of return better than just about anything else avaialbe.</p>
<p>I would investigate this further. Contibuting and withdrawing in the same tax year = a wash and may not get you anywhere!</p>
<p>The withdrawal is not reported on your taxes if it’s used for qualified educational expenses. There’s no wash rule for 529s. If you’re one of the fortunate ones to live in a state that allows a deduction for 529 contributions, by all means take full advantage of it.</p>
<p>Absolutely, i’ve been doing this for over 1 year now. in PA, we can deduct $24K/yr in 529 contributions. PA’s relatively low state tax so its not a huge benefit, but every little bit helps. i have had no problems making withdraws to pay tuition from our 529 plan using funds we had recently deposited.</p>
<p>Also, you might consider that there’s no double dipping allowed with 529’s and the American Opportunity tax credit (aka Hope) or Lifetime Learning credit. So, unless you’ll max out the federal credit anyway, it might not be worth doing just for the smaller state credit.</p>
<p>I was considering doing this. Just putting money in 529’s money market account, and then pulling it out to pay tuition a few months later. However, a few days ago I got a mail from Vanguard (529 custodian) with a couple of policy changes notes. One of the notes mentioned that 529 plans are used to save for college…and should not be used for sole purpose of minimizing state income taxes. I think that I will wait for a year or so before taking money out. Just to be on the safe side.</p>
<p>Bob</p>