[USER]

First of all, apologies if I sound stupid, I am trying to understand if my strategy makes any sense at all.

We are based out of IL. Annual household income is 160K, almost max out 401K, IRA/Roth IRA and some in brokerage account as well.

Married no kids yet, so never invested in 529 so far. Signed up for Masters with an accredited university. For 529, IL provides deduction up to $20K for married couples per year.

My course expense will be 12K per year which I will have to pay directly to the university.

I do have an opportunity currently to take a reimbursement from my employer for education which will be about $10K per year and I was told out of which any amount above $5250 will be shown as a taxable income in my W2.

Now given the above situation, can I just open a 529 account, deposit 12K and pay for my course from 529, as this is a valid educational expense, so that I can take advantage of the tax deduction?

Am I missing something or not thinking correctly? Any advice is greatly appreciated.

[Melissa]

You should make sure to read up on the laws in IL but I kinda do the same thing for my 2 elementary boys. I contribute monthly to their 529s and then pay their private school tuition in full from the 529 every year.

This way I get a “paid in full” discount from the school, and in Ohio, you can deduct 4K in OH taxes for each beneficiary.

I replenish their 529s each month so I can repeat the next year.

Of course, I’m not getting maximum growth as I am withdrawing annually but I want to also benefit myself now.

[Prasad]

If you use your full employer reimbursement of $10K, then $5250 gets added to your taxable income.

At your income level, I believe you will pay 24% federal tax on that, plus the flat 5% IL state tax, so total tax = $5250 * 0.29 = $1522.

If you got $12K with you to put into 529, then set aside the $1522 for taxes, and put the rest $10.5K into the 529 and take the state tax deduction for that.

Then pay $2K remaining tuition from the 529.

The rest remains in your account, which you can use for your own future education expense or for your future children.

Is this making sense or am I missing something here?

[Author]

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