529 contribution or charitable donation?

[MochaDoc]

I'm at a crossroad and time is running out to make this decision.

Any glaring financial benefits of doing either of the above?

I have no kids and am currently single but am hoping both of those will change within the next three years.

I could do a hybrid approach but would prefer to max out my state's 529 deduction ($8000) or donate to a few charitable causes.

All thoughts appreciated.

 

[jfoxcpacfp]

Well, the 529 will get you a state deduction only. And what if you end up not having kids? Then you'll have to give it to a niece or nephew. Charity will save you more money and do more good. I vote charity. Might be a good year to start a DAF. Here is POF's tutorial.

Somebody in government should come up with a new bill for people with unused 529s to give them to needy children and get a tax deduction. Wouldn't that be great? Then we wouldn't have to worry so much about overfunding!

[AlexxT]

Donating to charity will always leave you with less money than just keeping the money in a taxable account.  With a charitable donation, you pay less in taxes, but also end up with less.  If your goal is to keep the most money, then either keep the money in a taxable account or a 529.  The worst that happens with a 529 is that you pay a 10% penalty on the growth.  That's ok.  It might still leave you with more money than a taxable account, depending on tax brackets.

[PhysicianOnFIRE]

jfoxcpacfp wrote:

Somebody in government should come up with a new bill for people with unused 529s to give them to needy children and get a tax deduction. Wouldn’t that be great? Then we wouldn’t have to worry so much about overfunding!

Click to expand...

That's an awesome idea!

Please ask your senators and representatives to scribble it into the margins of the tax reform bill. I kid, but I think that would be a great option. I'd probably continue funding ours to the state max if I had that option with the leftover funds.

[jfoxcpacfp]

AlexxT wrote:

Donating to charity will always leave you with less money than just keeping the money in a taxable account.  With a charitable donation, you pay less in taxes, but also end up with less.  If your goal is to keep the most money, then either keep the money in a taxable account or a 529.  The worst that happens with a 529 is that you pay a 10% penalty on the growth.  That’s ok.  It might still leave you with more money than a taxable account, depending on tax brackets.

Click to expand...

You're right, of course. I should have indicated that charity was the best choice if you are already charitably inclined.

[Phoenixdown99]

Sorry I am a bit confused, I thought you could only contribute to a 529 if there was already a child from whom the account is created

Is this incorrect? I'd like to start an account for future children because I definitely plan to have kids in the next 5 years.

[RogueDadMD]

You can start an account for yourself if you want.  Also if the tax bill passes you'll be able to start a 529 for a fetus.

[RogueDadMD]

However my vote is for charity, if the goal is just to do good.  If your goal is compound growth to help you/your family financially in the long-term, then giving the money away isn't going to help you and you can just invest it in a very tax efficient way within a taxable account, or a 529 if you are fairly sure you plan to have kids.

[Phoenixdown99]

Can you start an account for yourself, then switch the beneficiary to a child once they are born?

[MochaDoc]

Thanks to all who chimed in.

From what I understood, the general recommendation is to give to charity if that's my thing. Otherwise, place the money in a taxable account for accessible growth until/unless a child is on the way/already present then open a 529 for them. Sounds reasonable.

Charitable contributions it is then. I'll have to give PoF's DAF post a closer read. I assumed you needed tons of money to get one of those things started.

 

Once again, thanks.

[MochaDoc]

Phoenixdown99 wrote:

Can you start an account for yourself, then switch the beneficiary to a child once they are born?

Click to expand...

From what I understand, yes.

[Phoenixdown99]

Yes it looks like it, thank you

Sorry to hijack the question

I was wondering if it is worth it to contribute $4000 for 2017 to the 529 if I can deduct $4000 in state taxes....because I can also deduct state taxes from my federal taxes (I think, at least before the tax bill passes)

[MochaDoc]

Phoenixdown99 wrote:

I was wondering if it is worth it to contribute $4000 for 2017 to the 529 if I can deduct $4000 in state taxes….because I can also deduct state taxes from my federal taxes (I think, at least before the tax bill passes)

Click to expand...

If you get to deduct your 529 contribution as both a state and fed deduction, I'd go for it. Most of us only get the state tax deduction.

 

Re hijacking the thread, no worries. I do it all the time.

[Phoenixdown99]

as far as I know it is just the state deduction (Virginia)

However I am not sure if this is much of a benefit b/c if I get rid of my state taxes, I won't be able to deduct them from my federal taxes.