529 Plans: Why You Should Invest for Just 24 Hours

Last Updated Jun 3, 2010 5:52 PM EDT

Most parents stop contributing to their 529 plan when their children reach college. This sounds logical, but it's Antique clock faceoften not smart.

Parents, who are on the verge of writing a check for college costs, can often capture a state tax deduction worth hundreds or thousands of dollars by dumping the college cash into a 529 plan for 24 hours.

Sounds crazy? It isn't. Most states offer tax deductions for their 529 college plan and they don't stipulate how long the money needs to sit in an account. According to FinAid.org, 32 states and the District of Columbia offer full or partial state income tax deductions for 529 plan contributions.

The Vanguard Group, which is a major 529 plan player, has gotten requests from savvy 529 plan investors, who ask for disbursements right after they've made contributions, says John Heywood, a Vanguard principal, who is in charge of the firm's 529 plan operations. "If you make a contribution today, we can disperse it in a couple of weeks," he says.

Before investing in a 529 college plan for a day or two, check with your state plan to make sure it hasn't imposed a waiting period for contributions to qualify for state tax deductions. There might be a couple of states, Heywood says, that impose a one-year waiting period.

Wonder if your state awards 529 plan tax deductions? You can find a list of states that provide 529 tax deductions at FinAid.org.

Lynn O'Shaughnessy is the author of The College Solution, an Amazon bestseller, and she also writes for TheCollegeSolutionBlog. Follow her on Twitter.
529 plan image by Stevendepolo. CC 2.0.

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