<p>We live in Colorado, and I never opened a 529 for my daughter, who is going to school this fall. I know a lot of people who were clobbered by the collegeinvest.org 529 here when the markets crashed, so in hindsight it might have been a good move. </p>
<p>I have just discovered that that CO is one of the very few states allowing unlimited contributions to their 529 and that the entire contribution is deductible from state income tax. I have until April 15 to open an account and contribute and have the money count as a 2010 contribution. </p>
<p>Here are the questions. It is a long shot that anyone on here will know the definitive answers, but I thought I'd try since I can't contact the state until Monday:</p>
<p>1) I've already filed my state income tax return for 2010. If I make a contribution this week to the Colorado collegeinvest.org 529, I believe from what I've read that I can just file an amended state return and get a refund for the 4.63% state income tax against the amount I contribute. So, if I put $20000 into the account, then file an amended return, I'll get $926 back on an amended return. </p>
<p>2) I believe I can then just pull the money out in September to pay for my daughter's college tuition, even at a private out of state school. </p>
<p>3) I can put the money into the FDIC insured colleginvest.org account with NO FEES and there is no risk.</p>
<p>Has anyone done something similar in Colorado? I need every angle I can find to send my daughter to school. It seems like a no brainer.</p>
<p>One minor note is that your state tax refund will appear on your IRS 1040 in 2011 and will raise your AIG accordingly (please double-check this!) So your net gain won’t be quite as high overall, but it still seems like the numbers still come out in your favor. </p>
<p>Where else could you invest $20,000 for a risk-free return of 5% in 6 months?</p>
<p>We don’t live in CO, but it sounds like a great plan to me, too!</p>
<p>It’s true what vballmom said about state tax refunds being added back to AGI (1040 line 10) if you itemize, so it will be subject to federal income tax in the following year (2011). If you receive financial aid, the FAFSA formula will increase you EFC by 47% of any increase to AGI. But 53% of a tax refund is still a good thing. </p>
<p>You can keep it from increasing your EFC if you adjust your state withholding for 2011 so that you end up owing the state a little bit at the end of the year or get at most a small refund.</p>
<p>Risk-free return of almost 5% in 6 months is a good deal indeed! (plus you’ll probably earn a bit on the investment as well - tax-free! Our state has a “guaranteed”, i.e. no-risk, investment option that pays around 3% per year - CO probably has something similar.</p>
<p>I would just make sure that you are able to take the deduction for 2010 by amending your return. In Oregon, the requirement is that you have to have made the contribution before you filed your tax return.</p>
<p>I combed through the Colorado government websites looking for a gotcha and found none. </p>
<p>It looks like all I have to do is open the collegeinvest.org account, open an account at FirstBank with a whopping .2% return, but no fees, and then deposit the money into the account. As long as I get that done by April 15, I then file a Colorado amended income tax return, form 104X, and put the amount deposited on line 10. I send it in (104X is paper only), and then wait…for up to four months. At some point I should get a direct deposit for 4.63% of the amount I put in the account. In September I have FirstBank/collegeinvest send a check to the college. </p>
<p>Lather, rinse, repeat, for four years. </p>
<p>I am going to try to call either the state or collegeinvest.org to make absolutely certain I can get the money back on an amended return. Had I not filed already, it would not have been an issue.</p>
<p>I checked because our state has a “guaranteed option” that is no risk and pays about 3%annually and I wanted to see if CO has something similar. Turns out they do – check out the “Stable Value Plus” plan. It’s guaranteed to earn a <em>minimum</em> of 2% (prior to any fees) and may earn more. Its current annual rate of return is 2.9% (the rate is reset each January) Looks like it has a “program management fee” of .75% - it might be worth calling them tomorrow to find out how that fee is calculated and assessed. Odd - on a different page it says that the annual administrative fee is .65% - but only until Aug. 31, 2011. You can make contributions whenever you want (it seems odd that the blerb for the money market 0.2% option emphasizes that you can deposit and withdraw whenever you want - as far as I know, that is the case with ANY 529 plan. A phone call could clarify this as well)
You might also want to ask them how long funds need to be in the account before they can be withdrawn and the logistics of making contributions and withdrawals (can this be done online by transferring money out of or into your checking account, by phone, etc. Our 529 plan has our checking account info linked to our plan, and I can go online anytime and transfer money into or out of the 529 - easy as pie. You can also have automatic contributions made from each paycheck.)</p>
<p>MomCat2, “Stable Value Funds” are not guaranteed. In fact, they are in many ways like a ponzi scheme where if the company backing the plan (MetLife in this case) were to get in trouble, the first people asking for their money get it and the people at the end of the line get the shaft. The realities of Stable Value Funds are too complicated to go into here, but rest assured, they are NOT guaranteed, and the plan disclosures put that in BOLD letters. </p>
<p>Since the money is only going to be in the account for a few months, any interest accrued over and above the fees charged would be negligible anyway.</p>
<p>I just wanted to follow up on this for people who may have the same question in the future. </p>
<p>I want to emphasize that I am speaking only of Colorado.</p>
<p>In CO the limit for 529 contributions is north of $200,000 total, with no limit for a single year. You deduct the contributions by entering them on line 10 of the Colorado State Income Tax form, and the contributions are a deduction to your income. Essentially this means you reduce your Colorado income tax by 4.62% of your contribution. I do not know if this becomes a credit. In other words, if your total income tax paid for the year was $0, I do not think by contributing you will get a refund, but ask a tax expert. </p>
<p>Similar to IRA contributions, money put into a 529 before April 15 counts against your previous year’s tax return. </p>
<p>There is no restriction on how long the money must remain in the account, but of course, it can only be used for expenses valid under the 529 rules. </p>
<p>CO’s 529 has a savings account option through FirstBank that has no fee whatsoever. Of course, it pays virtually no interest either, but it is FDIC insured, so it is completely safe. As I posted above, there also is a “Stable Value” option, but Stable Value funds are not guaranteed and have a pretty high fee structure. The other two options are mutual funds through Vanguard or Legg Mason. </p>
The general idea was discussed here:</p>