It sounds like they're talking about what I call 529 rinsing.
Let's say you have a $5K K-12 tuition bill. Obvious option is to write a check for $5K and pay the tuition. Or, you can open a 529 for that kid, put $5K into the 529, get any state tax benefit, then take the $5K out of the 529 and use it to pay the tuition; as a qualified education expense it's totally tax free. And any earnings inside the 529 are tax deferred.
Several states have caught on to this trick and have implemented rules to prevent it. Check out your state tax code in this area and look for terms like 529 recapture in areas where there are additions to income to see what, if any, the rules are for your state.
Let's say you have a $5K K-12 tuition bill. Obvious option is to write a check for $5K and pay the tuition. Or, you can open a 529 for that kid, put $5K into the 529, get any state tax benefit, then take the $5K out of the 529 and use it to pay the tuition; as a qualified education expense it's totally tax free. And any earnings inside the 529 are tax deferred.
Several states have caught on to this trick and have implemented rules to prevent it. Check out your state tax code in this area and look for terms like 529 recapture in areas where there are additions to income to see what, if any, the rules are for your state.
Statistics: Posted by secondcor521 — Fri Feb 14, 2025 10:24 pm