[quote=FlyerInHi]As a concept, I don’t see why tax deferment should be avoided, even though deferment might not be permanent.
You defer taxes as long as you can, and pay taxes when they come due. You still benefit from paying later rather than sooner.[/quote]
In concept, think of the case that your tax rate is higher later what it is now…For example, suppose Hillary is president in 2024 and she decides that LT capital gains rate should be 30% for everyone. Because obviously everyone things capital gains should be taxed at a higher rate…
Or if the 529 plan is like an IRA, withdrawals would be taxed more like ordinary income, not LT capital gains. And that will depend on your tax bracket. (Granted, obama says in case of the 529 plan, it would be taxed at your kid’s rate…which likely is your tax rate because of the kiddie tax)
Reality is, it’s not so simple as that. It depends also on whether you plan on buying/selling during that period when you are invested…. Buying/selling in a tax deferred account doesn’t incur taxes on gains during that time. So conceivably, if you do well, more of your money compounds each year than if you buy/sell in a normal account and have to pay capital gains/dividends along the way… So it depends…
For me, I just wouldn’t want to tie my money into a limited use account, if it was just a tax deferral. partly because I also anticipate in my future, my income will be more than my wage incomes now…
