Question about 529 account and state / federal taxes and federal gift taxes My daughter is starting college. I am fortunate to have the money to pay her tuition. I live in PA where my understanding is that CONTRIBUTIONS to a 529 create a state tax deduction. So can I do this and does it work..
Can my wife and I deposit the money (total under $22,000 which I think is the limit of the deduction for married filing jointly) for her tuition into a 529 and generate a state tax deduction on the $22,000 (at 3.07% that's worth about $814 less the costs for the 529). Then during the year I will draw the money out of the account to pay her tuition. As a bonus, any investment gains on the 529 account accrue federal tax free and state tax free (which is the real intent of the 529). But I'm happy just to generate the state tax deduction. Do I have this correct, I can get a state tax deduction on her tuition by using the 529 as a conduit to pay the tuition? Are there any other federal or state gift tax implications? i.e. taxes due or forms that need to be filed? Also can the 529 be used to pay room and board and books etc. (without penalty) or is it only tuition? thank you Mark