While writing The 529 Handbook, I realized that many families could benefit from my real world experience. I’m going to start publishing my own 529 report card each year. The report card will include a peek at our education expenses, my 529 transactions, and the impact on my federal and state taxes.
Yeah, we’re already most of the way through 2022, but better late than never. Here’s my report card for 2021.
Report Card Summary
| Education Expenses | |
|---|---|
| Total Cost of Attendance | $14,877 |
| Total Eligible Expenses | $12,251 |
| 529 Transactions | |
|---|---|
| Beginning 529 Balance | $11,113 |
| Total Contributions | $12,100 |
| Total Withdrawals | $12,251 |
| Ending Balance | $12,938 |
| State and Federal Taxes | |
|---|---|
| VA State Income Tax Savings | $696 |
| AOTC/LLTC | $0 |
| Excess 529 Withdrawals | $0 |
| Federal & State Tax on 529 Withdrawals | $0 |
Cost of Attendance (COA)
My oldest daughter attends Brigham Young University in Provo. Like most schools, BYU’s academic year spans two calendar years. This means I have to mix the cost of attendance (COA) numbers from two different academic years. Our total COA for calendar year 2021 was $14,877:
- Tuition: $6,045 ($2,985 for Spring 2021, $3,060 for Fall 2021)
- Housing: $7,928 ($3,904 for Spring 2021, $4,024 for Fall 2021)
- Books: $904 ($448 for Spring 2021, $456 for Fall 2021)
I’m intentionally ignoring any education expenses that aren’t 529-eligible, such as transportation, insurance, personal expenses. BYU is an incredible value compared to in-state public schools and other private schools.
Eligible Expenses
The COA is a theoretical maximum. In reality, we spent less than the COA in 2021. Not only were book expenses less (I’m not sure why it’s so much less; maybe her degree?), but she also saved money by moving off campus for fall semester. Our actual expenses were $12,251:
- Tuition: $6,045
- Housing: $6,157
- Books: $49
529 Transactions
On January 1st, 2021, my daughter’s 529 had a balance of $11,113. This wouldn’t have covered even one year’s worth of expenses. No excuses. I wish the balance was higher.
During 2021, I played catchup, contributing an additional $12,100 to her 529 accounts. The contributions were spread across the year and across three different portfolios: Total Stock Market Index, Aggressive Growth, and Conservative Growth.
I waited until mid-December to take any distributions, withdrawing a total of $12,251. I reimbursed my daughter from the 529 for the housing and groceries expenses that she paid out-of-pocket ($2,645). I paid for the remainder of her expenses during the year using non-529 expenses, and then reimbursed myself from the 529 in late December. 45% of the total distribution was attributed to earnings.
On December 31, 2021, the total 529 balance was $12,938, an increase of $2,425 over January 1st. My internal rate of return (IRR) was 13.18%.
State and Federal Taxes
Virginia allows a state income deduction of up to $4,000 per account. Accounts are defined by three things: tax payer, beneficiary, and investment portfolio. By opening multiple different accounts, my 2021 contributions saved me $696 of state tax. This bumped my IRR to 16.93%.
Unfortunately, we didn’t qualify for either the American Opportunity Tax Credit or the Lifetime Learning Tax Credit. This could have been worth as much as $2,500. Hopefully next year?
Final Thoughts
I feel satisfied with my 529 usage in 2021. I wish the 529 balance was higher leaving the year, but saving for both my retirement and college for six kids isn't trivial. I successfully maximized the state tax benefit by passing every eligible expense through a 529. 2021 was also a great investing year, made sweeter by Virginia’s generous state tax benefit for 529 contributions.