Go Back to School And Get A State Tax Deduction While Saving

My wife, Jessica, and I (along with our two children) took a trip yesterday to the local junior college in our town.  After a visit to her bestie's house, she has gotten the bug to go back to school and complete her pre-requisites for Dental Hygienist school.  Jessica is currently a Registered Dental Assistant and has 13-years experience.  Her bestie recently completed Dental Hygienist school and "hyped" up her new job where she earns way more money, has her own patients, and more importantly, feels less pain from the repetitive motions of cleaning teeth daily versus how she ached while assisting a dentist.  By the way, if you're thinking bang for your buck in terms of a career, Dental Hygiene is a good one.  Take a look at the job outlook at The Bureau of Labor Statistics.


In one hour, Jessica was able to register online, inquire about transfer credits (she completed some college courses seven years ago at another junior college), see a counselor, and even get information on child daycare services.  My son will have to go with her on some days while she attends classes during the day.  And this is why I love junior colleges!  They're incredibly helpful to students, and you're treated like a person and not a number.  So if you're thinking about going back to school, getting re-trained, or heck, even starting a new technical career, there is really no excuse for stalling as junior colleges are very friendly to working adults with children.

Money.  Yes, I read your mind.  Well, some of you may not be able to outright afford going back to school as older adults.  You can always apply for financial aid, or seek out scholarships.  If you got any money in a Roth IRA, you can use your contributions to pay for school penalty and tax free.  Be careful to not use any investment earnings within your Roth IRA, however, because those will be taxed.



STATE TAX DEDUCTION POSSIBLE

If you're going to enroll this fall or next spring, and you itemize on your tax return, why not also get a state tax deduction while making college savings contributions?  You see, with a section 529 savings plan, you may be able to qualify for a state tax deduction.  For example, if you're in Maryland, you can deduct up to $2500 per account beneficiary.  In this case, the account beneficiary is you!  Not your child.  529 plans are not only for minors.  Of course if you happen to live in a state where there is no income tax (e.g. Nevada, Alaska) then this isn't for you.

So I was all excited about getting an additional state tax deduction on our joint income tax return from Jessica's college expenses, covered by a CA 529 plan, until I discovered that stinking CA doesn't offer any section 529 state tax deductions.  I should've known!  CA...you suck!  Go here to see if your state offers an income tax deduction for contributions to 529 plans and to find out what the limits are.

HOW MUCH IS IT WORTH?

Just how much in state tax savings is there for making contributions to a 529 plan for an adult or child?  For a couple filing jointly with $100K in taxable income and living in Oregon, let's say, they'll be saving a whopping $162 a year.  That may not be enough to encourage mom or dad to go back to school and go through the trouble of setting up a section 529 plan, but consider these savings over a 10 year period or longer if it's for your child's college expenses that you're saving for?  If I lived in Oregon and was going back to school in my 30s or 40s, I'd take the time to fund a section 529 plan just to get the tax savings.  Especially if my wife and I made more than $100K...every dollar counts!

If you want to know how much you stand to save in taxes where you live, go here.

HOW DOES IT WORK?

If your time frame is short, like you need to pay for college this year or next year yet still want a state tax deduction, follow these steps:

1.  Go online to your state's section 529 website.
2.  Open an account and fund it.
3.  Select the most conservative portfolio option.
4.  Have payments sent directly to your bursar's office or have them cut you a check.
5.  Keep all your receipts for tax purposes.  Remember...qualified expenses only (books, tuition, computers, and supplies).  No you can't use your 529 savings to pay for your car insurance or for gas to and from school.

Number three above is key.  You don't want to put your money in a plan option that invests in stocks or bonds.  Find the one that guarantees safety of principal (is in money market accounts, e.g.).  Why?  You don't want to risk losing the money you'll be needing immediately to pay for school.



If you're wondering, most plans allow you to use the money as soon as you deposit it, meaning, there is no waiting period.  You'll get the tax deduction even if you turn around and withdraw the funds the next day!  This is a nice loophole.  Some states, however, have a one-year period on withdrawals so you'll want to postpone registering for classes at least a year.  Do your research.

It's competitive out there.  Last I checked we had some of the lowest unemployment numbers so our economy is recovering.  Still, I recommend you don't get complacent.  Keep learning and staying on top of your game.  Taking some classes at the local junior college may make the difference between an employer keeping you or letting you go.  Getting a state tax benefit while you're polishing or learning new skills is like a cherry on top.

Thanks for reading! Until next time.