529 Account for Retirement Savings Story

529 Account for Retirement Savings

Does it make sense to invest in a 529 plan to help fund your own retirement? This is a question that Dr. Jim Dahle has been asked a number of times.

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Yes, these plans are designed to be used for educational expenses, and there is a penalty when you use them for other things. On the other hand, there can be up-front tax deductions when making contributions.

The good doctor runs some numbers in an attempt to get to the bottom of this strategy. Interestingly, his conclusion differs from that of the FI Physician, but they used different taxation assumptions and time horizons.

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#1 Tax Deduction/Credit Your state may give you a tax deduction or credit for some portion of your 529 contributions.

#2 Tax-Protected Growth

The underlying funds kick out dividends and capital gains distributions each year, which in a taxable account would cost you some money t hat you don’t have to pay thanks to the 529 structure. Read More

An additional benefit that you might not have considered is the asset protection issue. 28 states offer some amount of asset protection for their 529 accounts.

Disadvantages of a 529 Plan for Retirement Savings

Obviously, the government doesn’t really want you to use a 529 plan for retirement savings. Therefore, there are 529 account rules and penalties i n place that you should be aware of. Read More

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