529 Plan
What is a 529 Plan?
529 plans are tax-advantaged savings vehicles maintained by states or state agencies that allow individuals to save for a designated beneficiary’s future educational expenses. Contributions are made with after-tax dollars, earnings grow tax-free, and withdrawals are tax-free if they are used on qualified education expenses. Certain states allow for a state income tax deduction up to a specified amount.
TL;DR – A 529 plan is a tax-advantaged account that allows you to save for a beneficiary’s education at any age.
Eligibility
Any donor can open up a 529 for a beneficiary child; no income limits
There are no age restrictions for the beneficiary
Contribution Limits
Donors can contribute up to the annual gift exclusion amount of $16,000 per year ($32,000 per couple)
There is also an option to use 5 years’ worth of annual gifts upfront and contribute up to $80,000 ($160,000 per couple)
Withdrawals
Withdrawals can be made tax-free for qualified education expenses
Withdrawals for non-qualified expenses will be subject to taxes and 10% penalty
Taxes
Contributions are made with after-tax dollars; some states offer a state income tax deduction
Earnings grow tax-free
Withdrawals are tax-free if used for qualified educational expenses; otherwise, subject to taxes and 10% penalty
What are considered qualified education expenses under a 529?
Qualified education expenses include costs required for the enrollment or attendance at a college, university, or other eligiblepost-secondary educational institution (including trade schools). It also includes up to $10,000 per year in tuition for K-12 schools and up to $10,000 in student loanrepayments.
| Type of Expense | Qualification |
|---|---|
| Tuition and fees | Yes (full tuition of college and required fees); Limited to $10,000 per year for K-12. |
| Books and supplies | For college expenses only |
| Computers and internet access | For college expenses only |
| Room and board | For college expenses only, as long as the student is enrolled at least half-time |
| Special needs equipment | For college expenses only |
| Transportation and travel costs | No |
| Health insurance | No, even health insurance policies offered by a school are not qualified |
| College application and testing fees | No |
| Extracurricular activity fees | No |
| Student loans | Yes, with a lifetime limit of $10,000 |
State Tax Deductions
| State | State Tax Deductions |
|---|---|
| Alabama | $5,000 a year ($10,000 for married couples filing jointly) |
| Alaska | No state income tax |
| Arizona | $2,000 a year ($4,000 for married couples filing jointly) |
| Arkansas | $5,000 a year ($10,000 for married couples filing jointly) |
| California | No deductions |
| Colorado | Full amount of contribution |
| Connecticut | $5,000 a year ($10,000 for married couples filing jointly) |
| Delaware | No deductions |
| Florida | No state income tax |
| Georgia | $4,000 a year ($8,000 for married couples filing jointly) |
| Hawaii | No deductions |
| Idaho | $6,000 a year ($12,000 for married couples filing jointly) |
| Illinois | $10,000 a year ($20,000 for married couples filing jointly) |
| Indiana | 20% tax credit on contributions up to $5,000 |
| Iowa | $3,474 a year ($6,948 for married couples filing jointly) |
| Kansas | $3,000 a year ($6,000 for married couples filing jointly) |
| Kentucky | No deductions |
| Louisiana | $2,400 a year ($4,800 for married couples filing jointly) |
| Maine | No deductions |
| Maryland | $2,500 a year ($5,000 for married couples filing jointly) |
| Massachusetts | $1,000 a year ($2,000 for married couples filing jointly) |
| Michigan | $5,000 a year ($10,000 for married couples filing jointly) |
| Minnesota | $1,500 a year ($3,000 for married couples filing jointly) |
| Mississippi | $10,000 a year ($20,000 for married couples filing jointly) |
| Missouri | $8,000 a year ($16,000 for married couples filing jointly) |
| Montana | $3,000 a year ($6,000 for married couples filing jointly) |
| Nebraska | $10,000 a year ($5,000 if married filing separately) |
| Nevada | No state income tax |
| New Hampshire | No state income tax |
| New Jersey | No deductions |
| New Mexico | Full amount of contribution |
| New York | $5,000 a year ($10,000 for married couples filing jointly) |
| North Carolina | No deductions |
| North Dakota | $5,000 a year ($10,000 for married couples filing jointly) |
| Ohio | $4,000 a year ($4,000 for married couples filing jointly) |
| Oklahoma | $10,000 a year ($20,000 for married couples filing jointly) |
| Oregon | $150 a year ($300 for married couples filing jointly) |
| Pennsylvania | $15,000 a year ($30,000 for married couples filing jointly) |
| Rhode Island | $500 a year ($1,000 for married couples filing jointly) |
| South Carolina | Full amount of contribution |
| South Dakota | No state income tax |
| Tennessee | No deductions |
| Texas | No state income tax |
| Utah | 5% tax credit on contributions of up to $2,070 ($4,140 for married couples filing jointly) |
| Vermont | 10% tax credit on contributions of up to $2,500 ($5,000 for married couples filing jointly) |
| Virginia | $4,000 a year ($4,000 for married couples filing jointly) |
| Washington | No state income tax |
| West Virginia | Full amount of contribution |
| Wisconsin | $3,380 a year ($3,380 for married couples filing jointly) |
| Wyoming | No state income tax |