529 too late?

[Murph]

My dependent granddaughter, a high school senior, has decided she would like to go to community college or trade school next year. We had not put anything away for this.

Is it too late to start a 529 account for her to go? Is there any significant tax benefit to starting one this late in the game?

TIA

 

[Closet_Gamer]

Depends on your state I think ... you may get a tax deduction but they may require you to keep that money in the 529 for a certain number of years or you owe the deduction back.

Definitely need to research your local situation.

It may not make sense for money she needs next fall, but perhaps when she is a junior or a senior?

 

[karluk]

I agree with Closet_Gamer that you need to research your own situation, but by way of comparison I would have been able to benefit from an end of year 529 contribution. My state offers a state tax deduction for its own 529 plan and also enforces a one year holding period for money in 529 accounts. That means I would be able to make a 529 contribution on 12/22/23, claim the state tax deduction, and withdraw the money on 12/23/24 to cover qualified educational expenses incurred by the beneficiary at any date in 2024.

Even if the same strategy might work for you, you might already be too late in December to open a 529 plan and fund it before the end of the year. But it's worth investigating.

 

[SecondCor521]

Agree with the others. I would recommend checking out the state tax treatment in all the applicable states - the state of residence of your granddaughter, and your home state (OH or TN?).

You also would be wise to familiarize yourself (and her parents or whomever can claim her as a dependent) with the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). She or her parents can probably claim one of these tax credits each year. These credits can be claimed even if nobody opens a 529. There are interactions between disbursements from a 529 and claiming these credits to be aware of.

I used both 529s and AOTC for my three offspring and they both provided a very noticeable help in paying for their college educations.

529s, AOTC, LLC, and several other education benefits are all discussed in IRS Pub 970: https://www.irs.gov/forms-pubs/about-publication-970