529 tax implication?

Question

Hi,
I've opened a 529 account for my son recently, with the minimum funding of $25. Are there any tax implications if I fund this account before December 31? Will this reduce my federal tax if I do this?

I live in California, and I know that I don't reduce my state tax through my 529 contribution.

Thanks!

Answer 1

There is no federal tax deduction for contribution to a 529 plan.

If you want to save for your child's college and receive a tax deduction, you may open a traditional IRA and take a deduction if you are qualified. Earnings grow tax-free, and although the distribution is taxable, there will be no penalty if the distribution exceeds your higher education expenses for the year. Plus, you will retain ownership of the account.

Answer 2

There are no tax deductions or credits available for funding a 529 plan.

The tax advantage is that it grows tax free.