Tax Information With A Mother's Touch
Published by Eva Rosenberg, MBA, EA
Volume 6, Issue 261 June 6, 2004
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Tax Information With A Mother's Touch Published by Eva Rosenberg, MBA, EA Volume 6, Issue 261 June 6, 2004 |
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Your Kids' College Fund?  » From: The Air force Dear TaxMama: It would appear the 529 Plan may a good plan for retirement even if you don't use it for education. For instance, after many years of compounding tax free the 10% penalty and taxes you would owe on earnings not used for school seem to leave you with more money than if you saved in a normal taxed account for the same length of time. This would allow you to make small withdraws to subsidize your income in retirement. Additionally, you could take out your initial investment without tax consequences so it's a good savings vehicle. Does this seem logical or am I missing something? Ed  Hi Ed, You bet! This acts almost like another IRA. See Benefit #12 in this TaxMama Article. Of course, there is no penalty if you're disabled when you draw the money. So, if you leave it in until you're older, this money could be yours, tax-free. I've arranged for clients to withdraw down their IRA money tax-free, since their medical expenses and other deductions were high enough to absorb the income they drew. The penalty is only on the earnings of the plan, not the principal. So, you're right. You get your principal back, at no cost. There's only one problem .... One that Gary J. Lape, a business professor in Ohio has reminded us about - the sunset provision of the tax code. That means, in 2010, when the current provisions of The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) end, there won't be any more 529 plans. Professor Lape is concerned that the 529s may not still be around when we're ready to retire. Nonsense, I say! The entire mutual fund industry has too much at stake. They'll prevent this being sunsetted. But, it's worth noting. So, you will be seeing an update to 529 Plan article on TaxMama.com soon, with Lape's warning - and explanation. Keep digging, you're getting hooked on taxes. Best wishes, Eva Rosenberg Your TaxMama  |
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| Library of Congress - ISSN 1532-0790 Copyright © 2000-2007 - Eva Rosenberg |
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