Triple-Tax-Advantaged
The MO Most Plan is similar to other 529s in that it has numerous tax advantages. Like Health Savings Accounts (HSA), 529s are often “triple-tax-advantaged.” One tricky thing with 529s is that you have to carefully track the difference between federal and state taxes![1]
Tax Advantage #1 – Contributions Deductible From Missouri-State Income Tax
Firstly, in principle, and if you are a Missouri resident, your contributions are deductible from your Missouri-state income taxes. The limits on deductions are liable to vary year by year. As of this writing, you can deduct up to $8,000 if you’re filing singly, and up to $16,000 if you are married, filing jointly.[2]
HOWEVER #1: 529 contributions are not deductible at the level of your federal income taxes. So, don’t get mixed up. When in doubt, consult a competent and qualified tax professional.
HOWEVER #2: If you if relocate out of the state, then your Missouri deductions go away.
HOWEVER #3: Your deductions may be “recaptured” down the road if you make a NONQUALIFIED withdrawal — that is, one that is not earmarked for a permissible educational expense. (See further on.)
How Long Do Funds Have to Remain in Your MO Most 529 Account Before They are Available for a Deduction?
Qualified withdrawals may be made immediately – subject to your contributing funds clearing their respective institutions. Your contributions may be deducted the tax year you make them.
Since the MO Most literature seems to place no restrictions on accessibility, the inference is that you can contribute day 1, withdrawal the funds “at any time,” and still get your tax deduction on the contribution — up to deduction limits, and according to the tax rules, of course.
Of course, run all this past your tax adviser!
Tax Advantage #2 – Earnings Grow Tax Free
Secondly, earnings — if there are any – will accrue federal-income-tax free.
I say, “if there are any” because your investment experience is, in part, a function of the investment selections you make as well as your actual, real-world market experience.
If you have monies invested in high-risk accounts, and the market downtrends, then you could experience a loss. Earnings are NOT guaranteed.
There are often ways to mitigate market risk, for example, by investing in low-risk, fixed-interest vehicles that are (at least somewhat) disconnected from the market. If you need advice, seek out a licensed financial adviser or investment consultant. Your earnings may or may not accrue state-income-tax free. It depends on where you live.
Again, ask a tax adviser.
Tax Advantage #3 – Qualified Distributions Are Tax Free
Thirdly, if you use the accumulated money in your MO Most Plan for a “qualified” educational expense, then you won’t pay federal income tax on those (qualified) withdrawals!
How Long Does Money Have to Remain Inside the MO Most 529 Plan Before It Is Available for a Qualified Withdrawal?
There appears to be no time limit on the accessibility of the money for qualified withdrawals, presently, provided that the funds have cleared.[3] That’s the in-principle answer.
In practice, there may be a seven- or nine-day wait for accessibility if you funded the account from a checking account or bank transfer, or if you recently changed your mailing address.
But, these latter restrictions seem to be due to Vanguard’s internal policies, rather than to state guidelines.
What Counts as a ‘Qualified Withdrawal’ From a MO Most 529 Plan?
Presently, it looks like many of the following all count:[4]
On the level of primary and secondary (“middle” and “high” school) schooling; that is, Kindergarten to 12th grade:
Tuition payments to parochial/religious schools, private schools, and public schools.
On the level of postsecondary (e.g., college/university) schooling:
Tuition; some room and board costs and miscellaneous fees; school supplies (including books and even computers — if these are used by the student for his or her education).
Disclaimer
I am not a tax professional and I cannot give tax advice. This article is for general information or entertainment purposes only and should not be construed as financial, investment, or tax advice of any kind. For personalized or specific advice – or if you are not a Missouri resident or taxpayer – then please consult a licensed tax preparer who is knowledgeable about the Missouri Most 529 Plan.
For a no-cost, no-obligation review of your insurance situation, contact (636)447-1169.
[1] For more, see https://cdn.unite529.com/jcdn/files/MOD/pdfs/programdescription.pdf.
[2] See https://www.missourimost.org/home/faqs/getting-started.html.
[3] See https://www.missourimost.org/home/faqs/managing-your-account.html#how-soon.
[4] See https://www.missourimost.org/home/basics-of-529s/529-basics.html.