Open a new 529 account or not?

[TheHaitian]

Backstory... my wife have been savings for my daughter in a savings account shortly after she was born while I opened a 529 account for her last year. When we received the tax stimulus, my wife suggested I sent the $500 we received for my daughter to the 529 account and also when I received my bonus I contributed some to my daughters account to make up for the ~2.5 years her not having a 529 account.

Anyway as of last week contributions for 2020 is at $3,800. In DC we can deduct $4,000/year per individual or $8,000/year if we are married with separate accounts. Which is the question: is the extra tax savings worth opening another 529 account?

I can continue contribute to the current 529 account after reaching $4,000 but can only deduct $4,000 using on our DC taxes.
Or open a separate account under my wife name and contribute to that account after reaching the $4,000.

What would you do?

[Deleted]

Aug 17, 2020 7:50:37 GMT -5 TheHaitian said:

 Which is the question: is the extra tax savings worth opening another 529 account?

Or you could ask, is paying the extra taxes worth it to have the money in a taxable account?

I wouldn't contribute more to a 529 than you would have anyhow just to get the tax break, but if it's money you're pretty confident will get used for college it seems like a no brainer to me.  Keep in mind you can use up to 10K/year for K-12 tuition and up to 10K for paying off student loans.

What is your marginal rate for state taxes?

[TheHaitian]

Aug 17, 2020 8:07:19 GMT -5 minnesotapaintlady said:

Aug 17, 2020 7:50:37 GMT -5 TheHaitian said:

 Which is the question: is the extra tax savings worth opening another 529 account?

Or you could ask, is paying the extra taxes worth it to have the money in a taxable account?

I wouldn't contribute more to a 529 than you would have anyhow just to get the tax break, but if it's money you're pretty confident will get used for college it seems like a no brainer to me.  Keep in mind you can use up to 10K/year for K-12 tuition and up to 10K for paying off student loans.

What is your marginal rate for state taxes?

DC Taxes for 2019
-> Marginal Tax Rate : 6.5%
-> Effective Tax Rate : 5.425%

[Deleted]

I just reread your question and realized you're going to keep contributing to the 529 no matter what and were just questioning opening a second account.  How much more are you going to put in this year?  If it's not a lot, I wouldn't bother with a new account. 

[movinonup]

Are you going to contribute more than $4,000 every year?  If it is only this one time that you exceed $4,000 I don't think I would bother.  Deduct the max for the contribution and just accept that you did something good for your daughter and didn't get an extra tax break for the portion of the contribution over $4,000.  

-movinonup

[justme]

I agree with the above - are you likely to keep contributing significantly over $4000 each year? If so it makes sense, but if not probably not.

I also agree with are you sure you want that much in 528? $8k a year could be pushing or over $300k in there depending on how you invest. I know your wife spent a lot for her college, but is it likely to need that much just for school?

[tcu2003]

Ditto the others - if you're going to consistently contribute more than $4k per year, I'd open a second account.  If not, and this is a 1-year anomaly, I wouldn't open another account.

If you are going to contribute $8k each, go you for front loading! That'll give you flexibility to back off contributions later, especially if private school for K-12 enters the picture.