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What is the best model to determine the total return and tax implications of investing in a 529 college savings plan vs. lunmping all money into a consolidated investment portfolio.?

I would assume it has to do with the totla return of a larger pot of money vs. the increase tax obligation of long term capital gains tax rate.

Jan 05, 2012 by Brian from Philadelphia, PA in  |  Flag
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2 votes

The answer to this question is simple. Assuming that the college investment you are making is the same in amount and timing of investment, in a 529 account versus a personal account, the benefit of the 529 accounts "Tax free" status on all 529 account earnings is the key advantage. Thus, you will accumulate true long-term value over the future years through the annual tax savings feature so you will have more funds available for college. thus, your personal account returns have to exceed the and 529 account returns by the incremental tax rate you will be paying on the earned income. thus, you will have to take a greater market risk when investing. Which is obviously not the best idea with future college needs.

good luck.

Comment   |  Flag   |  May 26, 2013 from Milwaukee, WI

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Another thing to factor into your decision...Many states allow for deductions against state income tax for contributions to their (state sponsored) 529 plan. Depending on your state and its income tax rate, this could add to the value of a 529 plan versus a taxable account.

Comment   |  Flag   |  May 27, 2013 from Alexandria, VA

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Adi Benyishay Level 13

The simplest way to look at it is – Taxable (capital gain & dividends) as you go along, or tax free as long as it is used for education.

Therefore, to calculate the equivalent total return of a taxable account use the 529 return and add to it your tax bracket.

Comment   |  Flag   |  Apr 01, 2013 from Southampton, PA

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Every 529 plan is different. Work directly with your financial advsior

Comment   |  Flag   |  Jan 05, 2012 from Boston, MA

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