529 College Savings Plans: Never Too Late to Start

If your client starts a 529 college savings plan in the same year their child matriculates, they might need help with the concept of “planning.” But unlike homeowners in a desperate search for insurance ahead of a storm, late college saving is better than no college saving and can still do some good.

The Wall Street Journal’s Rachel Rosenthal helpfully notes that for “parents sending high-school seniors to college in the fall, here’s a surprising financial tip: Contributing to a 529 plan even just months before the first tuition payment is due will qualify the account owner for a tax benefit in many states.”

Under certain conditions, adding to a 529 can lower the state taxes a client owes in 34 states and the District of Columbia, she writes, citing the college planning website FinAid.org.

“Make sure your plan doesn’t require a minimum holding period before withdrawals to get the tax break,” according to Rosenthal. “While most states don’t require such a holding period, a handful do—like Michigan. There, the deduction of up to $5,000 per year for individuals (and $10,000 for a married couple filing jointly) is determined by subtracting distributions from the total contributions to the plan within the same calendar year. This implies you need to take the distribution in a subsequent tax year to get the deduction.”