If you haven’t put much—or any—money in your kids’ 529 plans this year, there’s still time before you ring in 2016.
You know why you should: Your contributions will grow tax-free and you can use withdrawals to pay future college costs.
You may even score a year-end tax break, since 33 states and the District of Columbia give tax deductions or credits for contributions.
But where can you find cash to invest, especially during this season of heavy spending?
Sure, you can lay out less for toys, tech gadgets, and other holiday gifts for your kids and stash the dollars you save in their 529s. But there are less painful (for the kids) ways to come up with cash. Here are some places to look:
- Earmark bonuses. If you get a year-end bonus at work, use all or part of it to feed your 529s.
- Ditto for flex refunds. Do the same with any reimbursements you receive this month from your health-care flexible-spending account (FSA).
- Swap vacation days. If you have cafeteria-style benefits, find out if you can trade any unused vacation days for cash before the end of the year.
- Use new income. If you’ve hit the annual maximum for Social Security payroll deductions for the year ($118,500 in 2015), invest some or all of the additional money you now see in your paycheck.
- Add another paycheck. If you can’t find extra cash in your regular paycheck, bring in another. Consider taking a temporary seasonal job, suggests certified financial planner Christopher R. Wills of R. W. Rogé & Company in Bohemia, N.Y. Better still, get a job at one of your favorite stores and buy holiday gifts with your employee discount.
- Harvest cash. Rebalance your taxable investment portfolio before the year ends. If dividends and interest payments have pushed your cash holdings above your desired allocation, shift the excess to your 529s, suggests Wills.
- Sell winners. CFP Rick Wagener of Wagener-Lee in Columbia, Md., advises selling appreciated securities to raise cash, particularly if you won’t have to pay taxes on long-term capital gains. You qualify if you’re in the 10 or 15 percent federal bracket (2015 taxable income up to $74,900 for married couples filing jointly; $37,450 for singles).
- Dump losers. If you’re in a higher bracket and need losses to offset capital gains and ordinary income this year, sell some losers in your portfolio. Shift a portion of the proceeds to your 529s.
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- Dig through your desk. Wagener also suggests checking your desk drawers and safe-deposit box for old U.S. Savings Bonds that are no longer earning interest. Cash them in to raise 529 money, but remember that you’ll owe federal income tax on their earnings.
- Tap the grands. Thank goodness for generous grandparents, especially those who prefer writing gift checks to shopping for presents. Invest a portion of the money that your kids get from their grandparents, like my husband and I did. Admittedly, there will be some backlash. When our daughters figured out that some of their Christmas cash was going into their 529s instead of their purses, they whined a bit. I felt like Scrooge, but our family stuck to our strategy. The pay-off: When our first-born earned her master’s in accounting this year, she thanked us for doing whatever it took to put her through college debt-free.