So I Opened a 529 Account For a Kid Who Doesn’t Exist
When I found out that a company I once worked for was being acquired by a giant corporation whose name ends in an exclamation point, and that I stood to make a lot-to-me of money from the deal, I was mostly in shock. I didn’t cheer, or high five anyone, or even go out and get drunk. I didn’t go out and buy anything, not even a nice meal. Just paced around the kitchen and mumbled “holy shit” a lot.
When my best friend came over for dinner that night, she yelled congratulations, hugged us, then shrugged her shoulders and said, “Well, now your kids can go to college!”
I laughed and said, “Yeah!” but thought, Wow that sounds boring. These kids I don’t even have can pay for college themselves, I’m going on a damn trip or something.
Well, it’s three months later and I still have not gone on a damn trip, but I do, inexplicably, have a college fund, a 529 account to be exact, with $5,000 in it. I opened it in August and I’m a little disappointed to report that it’s only made $25, despite my choosing the “ultra-aggressive” risk setting at nysaves.com.
Now if this sounds a little too much like starting a Pinterest board for your wedding before you meet someone you want to spend your life with (not that I don’t support that), let me explain. Or try!
A 529 account, for the uninitiated, is kind of like an IRA but instead of investing money for retirement, you’re putting money in a mutual fund for college expenses. Like 401(k)s and IRAs, the earnings you make are tax-deferred, and ultimately, for 529s, tax exempt! That shit can just grow and grow (or yes, shrink, but sssh, it’ll be in there for 20+ years and we aren’t going to think about that) and you don’t even have to report it on your taxes.
Plus! In many states, you can deduct your 529 deposits on your state income tax. In New York, for instance, you can deduct up to $5,000 if you are single, and $10,000 if you are married filing jointly. Which is why I deposited exactly $5,000. ¯_(ツ)_/¯
If you’re interested in saving for your kid’s college, they seem flexible and make sense. But what if, like me, you don’t have a kid, and you aren’t even married (I wasn’t even engaged when I did this, I will admit), but you’d still like to invest some money somewhere where you don’t have to pay taxes on the growth, not to mention the sweet tax deduction (and no, I never thought this would be a concern of mine, but here we are!)?
WELL, guess what? You can change the name of the account’s beneficiary whenever you want, as long as they are in your family.
This is how I justified it to myself, and how I opened up a 529 account that is technically in my name. Barring having kids of my own, or going back to grad school, which I am interested in, I can always give this money to a future niece or nephew. And yes, if no new young people are born into my extended family in the next 30 years, you can always withdraw the money for a 10% penalty (plus now it’s subject to income tax).
Other things about 529 accounts I like (more here):
• You can open a 529 account in any state, so if you don’t like the plan offered in your state (or if there isn’t one), shop around.
• You can use the funds in your 529 account at any accredited college or university, not just the ones in the state of your 529 account.
• Beyond tuition, funds can also be used for room and board, fees, books, and supplies.
• The funds are for the beneficiary, but the account holder controls them, and decides how they’re disbursed.
• There are no income limitations for contributors (unlike, say, the Roth IRA, which as of 2013 has an income cap of $125,000/year).
• Minimum contributions can be as low as $10! In New York, it’s $25.
And that is how I ended with a 529 account in my name with $5,025 in it. This is the only constructive thing I’ve done with the stock money since I got it, so I guess my friend was right. “At least my kids will go to college.” Or, at the current rate of growth and inflation, one child will get to go to one week of college. But hey, it’s something!
Photo: Andrew Magill