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With only 10 days left in the year, there are a three things you should know about 529 plans that are time sensitive.
1. State tax deduction – For residents of Virginia and a number of states, there is a state tax deduction available for any contributions made to a 529 plan. While the federal government does not provide a deduction, the growth in the account is tax free if it is used for qualified education expenses. The contribution needs to be made by year end to be eligible for the deduction on your 2015 taxes.
2. Distribution by year end – If you have incurred qualified education expenses in the current year and paid the expenses out of pocket, you need to distribute the reimbursement for these expenses in the year that they were paid. The end of the year is approaching quickly, so make sure you act soon if you need to take a distribution.
3. Rebalance your portfolio – Over time all investment portfolios move out of balance from their desired and original allocation. One fundamental principle in portfolio construction and management is rebalancing the portfolio. With 529 plans, you are only allowed to make changes to the portfolio twice per year. At the end of the year, it is a good opportunity to make sure the portfolio is structured properly based on your goals and time frame for the investments.
During this time of year, we are all so busy, and it is easy to overlook things that need attention before the New Year. Unfortunately, when you file your taxes and remember that you needed to address the items mentioned above, it will be too late. Take some time to focus on it now…you will be glad you did.
Hard work is at the core of everything we do. We pride ourselves on our dedication to service and strive everyday to embody the motto of our founders’ alma mater Virginia Tech, “Ut Prosim” – That I may serve.