529 savings plans and their impact on your tax return
The main advantage of contributing to a 529 plan is that you’ll be eligible for a deduction from your state income tax (in some states only). If you don’t file a state tax return, you won’t be eligible for a deduction for having contributed to a 529 plan.
The other advantage of contributing to a 529 plan is that growth in the plan is tax-free at the federal level.
- If you can find the way to invest your money in a 529 plan and generate income, then this type of investment makes sense.
- It's similar to contributing after-tax money to ROTH IRA, except the conditions for withdrawal are different and the amount that you can contribute may be higher depending on the particular plan.