<p>I read the program description etc etc, still just don't understand it.</p>
<p>My state has a tax deduction for "investing in a 529 College Savings Plan". Ok, so I need to pay for college for my wife, she's not a kid, we don't have time to "invest/save". Can I just open a 529 savings account, deposit money into it, and make a withdrawal the NEXT DAY (let's say). Then pay for college (within the same calendar year I guess?) Just to get that deduction. Can I? Should I do that? Is this the way to get that state deduction? (there is no other way).</p>
<p>The way it works in our state (and most, I suspect) is that it is the GROWTH of the funds that is tax-free. At the federal level, and in many cases if you invest in your own state’s 529, the gains on the investments are also free from that state’s taxes. But each state’s rules vary, so you have to review them carefully. </p>
<p>I am not sure about the spouse situation (although could Google to see), but given the above information and your original post, I doubt it would help you to have a 529 anyway.</p>
<p>“Virginia taxpayers who are inVEST
Account Owners may take a state income tax deduction for
Contributions to their inVEST Accounts, up to a limit of
$4,000 per Account, per calendar year”</p>
<p>inVEST is a 529 College Savings Plan in Virginia.
So contributions are deductible too, it looks like. Why cannot I get the same deduction for just paying tuition, I don’t know. There is a catch somewhere maybe. That’s why I’m asking… :)</p>
<p>Some states allow a credit or deduction on your state taxes for deposits to that state’s 529 plan. Looks like Virginia is one of them.</p>
<p>The catch might be that the funds need to be in the 529 account for a certain number of days before they can be withdrawn. Can you find the fine print?</p>
<p>Yes, you can put money into the 529 account, and then use it immediately to pay tuition - but you will need to look at the fees involved in setting up the account, and whether that would eat into any tax savings. But keep in mind you might also end up complicating your federal tax return. If you simply pay the same $4000 in tuition, you will be eligible for the American Opportunity Credit on the federal tax return, which would be worth far more than the deduction on your state tax return. Unless you’re paying $8000 in tuition, you would need to follow special rules to coordinate your 529 with the AOC.</p>
<p>The reason you don’t get the same benefit for simply paying tuition is that it is meant as an incentive to save now for future education, rather than waiting until the tuition is due to try to scrape together enough to pay.</p>