Dear Liz: The state I live in, Oregon, has removed the tax credit for 529 college savings accounts. This was pretty disturbing when I paid my taxes this year. Aside from the obvious benefits of savings, are these accounts still worth having? Luckily, our son has almost finished college, so it won’t affect us much, but I mean his two grandchildren.
Answer: Although there is no federal tax deduction for 529 contributions, most states offer some form of tax relief or other incentive to contribute to their college savings plans. Oregon now offers a tax credit limited to $ 150 for single files or $ 300 for married couples, which does not yield higher earnings than the previous deduction.
(Some states do not have income tax, and therefore no deductions for 529s, while some – California, Delaware, Hawaii, Kentucky, Maine, New Jersey and North Carolina – have a state income tax, but not 529 tax breaks.)
College savings plans still allow your money to grow with tax deferral and be used tax-free to educate your children. This can be a great benefit for families with higher incomes, especially when they have small children. (The longer the money has to grow, the greater the potential tax advantage.)
Grandparents may have additional reasons to contribute. From this year, money in 529 owned by grandparents is completely ignored by federal financial aid formulas. (Although money in parenting 529 has always been favorable for financial aid, distributions from grandparents 529 have been severely punished in the past.)
So, the 529 plans still apply to those earning more – and you’re not limited to your own state’s plan. If you don’t get a tax incentive to stay home, you have a lot of great options. Morningstar updates its every year list of the best 529 plans and last year singled out Illinois ’Bright Start College Savings, Michigan’s Education Savings Program and Utah My529 for top honors.
Dear Liz: You seem to have been caught in a scam. In recent column, state that you can get a free credit report www.anniversarycreditreport.com. I went to the page and filled in the required information. Instead of receiving a credit report, I applied for a paid membership. I was able to cancel it, but I didn’t get a credit report.
Answer: AnnualCreditReport.com, which has been providing free credit reports since 2005, is not a scam. Unfortunately, many people go to the wrong websites and end up being monitored for credit surveillance or similar products. If you are asked for a credit card, you are not on the right site.
One of the problems is that people search for terms like “free credit report,” “annual credit report,” or even “AnnualCreditReport.com”And click on the first link that opens, not knowing that many search engines put results pages on paid ads. Actual location, Annualcreditreport.com, could be half a page. A better way to access the site is to click on a trusted link, such as the one given here, or type the full URL in your browser’s address bar.
Dear Liz: I read your useful summary advantages of the Roth IRA. I recently retired and decided to open Roth (I know, pretty late) along with my traditional IRA. I have an investment manager who will hopefully create some gains on that account. One thing I’ve learned is that I have to wait five years before I start withdrawing earnings from Roth tax-free. For that reason, it might be helpful to encourage readers to open a Roth IRA early, with at least a small contribution, to keep the clock ticking toward that five-year deadline.
Liz Weston, a certified financial planner, is a columnist for personal finance NerdWallet. Questions can be sent to her at 3940 Laurel Canyon, no. 238, Studio City, CA 91604, or using the “Contact” form at asklizweston.com.
