29 states and the District of Columbia offer a tax deduction or credit for residents who contribute to their state’s 529 plan. Here is a list of them all. If you’re working your way through school, you should definitely try to take advantage and open a 529 plan for yourself.
How? It’s easy.
- Open a 529 and make yourself the beneficiary.
- Then, contribute to the plan and get the tax break, using the most conservative option (since you’ll be spending the money soon).
- Finally, take the money back out of the 529 plan to pay for your college expenses.
You must make sure that it’s okay for the contributor and beneficiary to be the same person. Also, you can’t pay for things with a 529 distribution that you want to use for the Lifetime Learning Credit. But this shouldn’t be a problem, as 529 plans are allowed to cover room and board, not just tuition. All you have to do is look up your school’s estimated tuition chart and see what their estimated room and board costs are.
For example, let’s take Oregon. You can deduct $2,000 a year in contributions. At Oregon’s 9% marginal rate, that’s $180 in savings each year. The estimated room and board for Oregon State University is $7,344, easily over $2,000.