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Posted by Mark on July 23, 2007, 1:16 am
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Question about 529 account and state / federal taxes and
federal gift taxes
My daughter is starting college. I am fortunate to have the
money to pay her tuition. I live in PA where my
understanding is that CONTRIBUTIONS to a 529 create a state
tax deduction.
So can I do this and does it work..
Can my wife and I deposit the money (total under $22,000
which I think is the limit of the deduction for married
filing jointly) for her tuition into a 529 and generate a
state tax deduction on the $22,000 (at 3.07% that's worth
about $814 less the costs for the 529). Then during the
year I will draw the money out of the account to pay her
tuition. As a bonus, any investment gains on the 529
account accrue federal tax free and state tax free (which is
the real intent of the 529). But I'm happy just to generate
the state tax deduction.
Do I have this correct, I can get a state tax deduction on
her tuition by using the 529 as a conduit to pay the
tuition?
Are there any other federal or state gift tax implications?
i.e. taxes due or forms that need to be filed?
Also can the 529 be used to pay room and board and books
etc. (without penalty) or is it only tuition?
thank you
Mark
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