What Is Virginia529?
Virginia529 helps VA residents set aside savings for college or other qualifying educational expenses. Virginia529 includes the state-sponsored Invest529 plan and a CollegeAmerica mutual fund (provided by third parties in Virginia).
These 529 plans grow and compound over time without the burden of federal taxes, and they do not need to be used within the state of Virginia. You can even use these plans for elementary, middle school, and high school, although the longer you let them compound, the more value they will hold.
Whether you are starting a college fund for your baby or planning on using a 529 for law school, these plans can be excellent investments.
Maximum 529 Contribution Limits In Virginia
Because a 529 plan encourages saving towards a future education, states heavily incentivize residents to use these funds. The IRS doesn’t require an annual contribution limit for 529 plans, but technically, a limitation policy is still present at the state level. It’s called the maximum aggregate limit. For a Virginia529, you can’t contribute more than $500,000 total for a single beneficiary. Each limit varies by plan, and the number is based on the state’s estimate on educational costs. Limits range from $235,000 to $529,000 state by state — Georgia having the smallest limit and California having the biggest.
This ensures that the balance isn’t running over the expected costs. Luckily, many families don’t have to worry about reaching the maximum. But those who do need to be cautious of the rules when depositing.
The $500,000 max rule is only towards higher education. In 2018, the 529 plan started supporting elementary and secondary schools. So the maximum number a parent can invest for grade and secondary school is up to $10,000.
How did Virginia Come up with the Max Limit?
As mentioned before, the limits are based on expected cost. The high limit in Virginia developed from the tuition cost increase from 2010-2020. According to Virginia529, the average cost of college tuition increases 5% per year.
Virginia has 127 colleges. William & Mary is the most expensive, while Virginia State is the least, making the average tuition is $13,636 per year and room and board around $11,000 per year. That’s around $100,000 in total for tuition and room and board.
5 Year Plan Maximum
Not everyone can deposit one big check, but many contributors still want to be consistent. Virginia529 grants a payment plan called the 5-year Election Plan. The payment can be broken up into 5 years, and the contributor decides how much is separated each year. Because of the maximum contribution rule, there is a limit for the election plan.
Starting in 2021, a person can contribute up to $75,000 if it were paid in a 5 year period. Every year this is done, it must be reported on a 709 form. If you were to contribute the max amount, it could be broken up $15,000 per year. The amount doesn’t have to be the same each year. You could $35,000 the first year, then $10,000 after.
Are Virginia529 Plans Tax Deductible?
Virginia529 allows you to deduct up to $4,000 of 529 contributions per year and enjoy long term tax benefits as your fund grows.
Just as there is a maximum number for everything else, there is a maximum number of how tax is deducted. The number varies by state, for example New York’s tax deductible is $5,000 every account year. In Virginia, the maximum to have taxes deducted per year is $4,000.
Using a math example, if you put $6,000 in 2020, up to $4,000 could be deducted from your Virginia State income tax return. By the way, the $4,000 dollars is for each student. So if you contribute $4,000 in 2019 for one student, and $4,000 in another. You could deduct up to $8,000 in your tax return.
Out of everyone, who contributes, senior citizens cash out the most in income tax returns. For ages 70 and older, the tax deduct limit doesn’t pertain to them.
If you are over 70, and add $10,000 towards the account in 2021, the whole $10,000 may be deducted out of income tax returns.
A gift tax is separate from the tax deductible benefit that also has an amount limit. For Virginia529, a contributor may grant up to $15,000 a year and $30,000 if married as a gift. If the gift amount is greater than $15,000 the amount goes towards life estate.
Furthermore, you won’t pay capital gains tax or be taxed on the growth of the fund as income once you withdraw the money, as long as those funds are used for qualifying expenses.
Open a 529 Plan in Virginia with Sootchy
Investing in a Virginia529 plan is beneficial for everyone in the process. Contributors play an important role in the future life of the recipient, and students will enjoy a college education without the burden of debt. Scan our blog for other helpful 529-related articles. If you would like to open a 529 account, we’d encourage you to download the Sootchy app if you’re interested in receiving 529 contributions from friends and family.
