Let’s say that I am maxing out my 401(k), IRA, and HSA; I’m putting away $250 a month in a 529 I own with my kid as the beneficiary; and any take-home income left over at the end of the month goes into a taxable brokerage account invested for early retirement, or whatever I want. So, I am prioritizing aggressively saving and investing for retirement, but also trying to save some for my kid’s education.
Let’s say I’ve also got $80,000 in a savings account generating something like $250 a month in taxable interest. I don’t expect to need this reserve for anything, but I don’t intend to invest it either. I want a large, safe, liquid cash reserve just to have it.
The 529 plan I’m in has an investment option that aims to provide capital preservation and is FDIC-insured. This option is designed to offer stability and security similar to a traditional savings account, with returns potentially comparable to those of a savings account. So, it occurred to me that if I stick $80k cash reserves in there, ~$250 per month would be kicked off tax-free right inside the 529 where I can direct that to a longer-term investment option I’m investing in for education, without having to make comparable, post-tax monthly contributions to the 529.
It is my understanding that I can take the contributions out of the 529 tax and penalty free whenever I want. (It’s the earnings that can be subject to tax and penalties, not post-tax contributions.) So that $80k would still serve as safe, liquid reserves for any purposes, even if I contributed it to the 529, so long as I kept the basis in the FDIC-insured option in there.
I just want to know if there’s any reason I didn’t think of that this would be a bad idea?