There are any number of reasons to love 529 plans as a college savings option – such as the lack of federal income tax and the flexibility to add or invest money how you see fit – but some states take the advantages of their 529 plans a step further by offering state income tax benefits. For families facing the possibility of a huge tuition bill when their child grows up, these deductions and credits can go a long way toward making college more affordable, and they incentivize contributions to your child’s future. However, not all states offer this benefit, and those that do impose their own unique restrictions on how much can be deducted or on what plans qualify for income tax breaks. So, what states offer a tax deduction for 529 plans? To find out, keep reading as the experts at Sootchy discuss the different state tax benefits of this popular college savings account.
States with Income Tax Deductions or Credits for 529 Plan Contributions
When considering the state-by-state tax benefits of contributions to 529 plans, it’s often helpful to split up the states into distinct groups based on whether they offer income tax incentives and what the nature of those incentives may be. Note that most states have unique tax treatments for ABLE accounts, and some offer benefits to companies that contribute to an employee’s plan; we won’t address either case in this piece. Below, we’ve grouped the states into five categories and detailed each state’s restriction on how much can be deducted from an individual’s taxable income.
States with No Income Tax
First and foremost, there are nine states that have no state income tax, and since residents of these states obviously can’t get a tax break on a tax that doesn’t exist, the question of deductions or credits for 529 plan contributions is moot. If you live in one of the following states, this applies to you:
- Texas
- Alaska
- Tennessee
- Nevada
- Florida
- Washington
- New Hampshire
- Wyoming
- South Dakota
States That Offer Tax Deductions for Any 529 Plan
Although the tax advantages of making 529 plan contributions are typically limited to donations to in-state plans, there are seven states that offer an income tax deduction on additions to any plan, even those administered by other states. If you live in one of the following places, you can enjoy state tax benefits on contributions to whatever 529 plan suits your family’s needs:
- Arizona – Up to $2,000 per year per person can be deducted on any 529 plan
- Arkansas – Up to $5,000 per year per person for in-state 529 plans, or up to $3,000 per person per year for out-of-state plans; rollover contributions qualify for a deduction of $7,500 per person per year
- Kansas – Up to $3,000 per person per year; rollover contributions not deductible
- Minnesota – Up to $1,500 per person per year; tax credit also offered
- Missouri – Up to $8,000 per year per person, but only for account owner or their spouse
- Montana – Up to $3,000 per person per year, but only account owners (and their spouses) are eligible
- Pennsylvania – Up to $15,000 can be deducted per person per year; rollovers are not eligible
States That Offer Tax Deductions for In-State 529 Plans
If you don’t live in one of the states listed above, there’s a good chance that your state offers some kind of tax benefit for contributions to in-state 529 plans. Residents of the following states may want to consider the advantages of enrolling in their state’s plan, though the tax breaks don’t always outweigh the benefits of other 529 plans.
- Alabama – Deduction on contributions of up to $5,000 per person annually
- Colorado – Contributions to in-state 529 plans deductible without limit
- Connecticut – Contributions up to $5,000 per year per person are deductible
- Washington, D.C. – Up to $4,000 per year per individual deductible; only available for account owners
- Georgia – Contributions of up to $4,000 per year per beneficiary deductible; rollovers don’t qualify
- Idaho – Up to $6,000 per individual per year can be deducted
- Illinois – Up to $10,000 in contributions can be deducted per person per year
- Iowa – Can deduct up to $3,439 (in 2020) in contributions, adjusted for inflation annually; only account owners are eligible
- Louisiana – Up to $2,400 deductible per beneficiary per year
- Maryland – Can deduct contributions up to $2,500 per year per beneficiary
- Massachusetts – Contributions up to $1,000 per person per year can be deducted
- Michigan – Up to $5,000 per person per year deductible; rollovers not eligible
- Mississippi – Up to $10,000 deductible per person per year
- Nebraska – Can deduct up to $10,000 per year; only for account owners
- New Mexico – All contributions to in-state 529 plans are deductible
- New York – Can deduct up to $5,000 per year per person; only offered to account owners and their spouses
- North Dakota – Up to $5,000 can be deducted per person annually
- Ohio – Contributions up to $4,000 can be deducted per beneficiary per year
- Oklahoma – Can deduct up to $10,000 per year per individual
- Rhode Island – Up to $500 per individual per year is deductible; rollovers ineligible
- South Carolina – All contributions to an in-state 529 plan are deductible
- Virginia – Up to $4,000 per year per account can be deducted; taxpayers age 70 or older can deduct any amount
- West Virginia – All contributions eligible for deduction
- Wisconsin – Can deduct contributions up to $3,340 (in 2020) per beneficiary per year; adjusted for inflation each year
States That Offer Tax Credits for 529 Plan Contributions
Instead of deductions, some states offer a tax credit, which may be more advantageous than a deduction depending on your amount of taxable income and the tax rate that applies to you. In a few instances, states offer a tax credit and a deduction; we’ve included all states that offer a tax credit below.
- Indiana – A 20% income tax credit on contributions up to $5,000; rollover contributions not eligible
- Vermont – A 10% tax credit available on contributions of up to $2,500 per person per year
- Minnesota – A 50% tax credit available for mid- to low-income families up to a maximum credit of $500
- Utah – A 5% tax credit on contributions up to $2,040 (in 2020), adjusted for inflation each year; additional restrictions apply
- Oregon – Tax credit available on contributions up to $150 per person
States with No Tax Deductions for 529 Plan Contributions
In a few states, no amount of contributions to a 529 plan will get you a break on your state taxes. The following are those states:
- California
- New Jersey
- Delaware
- Hawaii
- North Carolina
- Kentucky
- Maine
Get Help from Sootchy to Open or Contribute to a 529 Plan in Any State
No matter what state you live in or what 529 plan you choose, the team at Sootchy can help you get started with a new account or manage an existing one. Learn more by visiting us online or downloading our smartphone app today.
