529s

The wsj has printed articles about 529s, and some folks mentioned them on the Columbia admits yahoo board. I think that these plans are great for MBA students, and I'm using the DC plan, at least for a few weeks.

The principal benefit of these plans is that--up to a point--my contributions to the plan reduce my State taxable income. In DC, the first $3,000 that I contribute reduces my District taxable income. Since I'm in the 7% marginal income tax bracket for 2006, this is $210 that I don't have to pay.

This is useful for students, because I can withdraw the money in my 529 account to pay for tuition, room, and board while I'm at Columbia. I will liquidate my DC 529 account when I get the bill from Columbia at the end of August, and put the proceeds towards tuition. I will also get a loan check that will replace the $3,000 that came from my pocket.

In effect, $3,000 is out of my hands for a few weeks, and then I get it back. But because of the 529, I lower my DC taxable income.

One key is that I have to live in the District when I make 529 contributions. If this rule didn't exist, then I could take my loan check, deposit the money in the 529, and immediately withdraw it to pay for school. Columbia students who have worked in New York State this year will be able to do exactly this.