Choosing the Right 529 Plan for Your Family: Navigating State Tax Benefits

We explored in our previous post how to begin saving for college using 529 plans. Now, let's dive deeper into selecting the best 529 College Savings Plan that aligns with your family's financial goals and educational needs.

What?

Choosing the ideal 529 College Savings Plan for your family involves a careful examination of several key factors that align with your financial goals and educational aspirations for your beneficiaries. These tax-advantaged savings plans are designed to facilitate saving for future college costs, but the variety of plans available means that selecting the right one requires a nuanced understanding of each option's benefits and limitations. Performance, costs, and tax benefits are crucial considerations.

So What?

529 College Savings Plans come with general tax benefits, such as tax-deferred growth and tax-free withdrawals. Their tax benefits in each state vary significantly across different states, influencing both the attractiveness of each plan and the strategic financial decisions for residents. Below is a detailed overview of the state tax deduction availability for residents investing in their respective state's 529 College Savings Plans in 2024:

State	State Tax Deduction for 529 Contributions	Source
Alabama	Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://www.collegecounts529.com/
Alaska	No state income tax	https://www.alaska529plan.com/
Arizona	Up to $2,000 deduction for single filers, up to $4,000 for joint filers	https://az529.gov/
Arkansas	Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://brighterfuturedirect529.com/
California	No state tax deduction allowed	https://www.scholarshare529.com/
Colorado	100% of contribution amount deductible	https://www.collegeinvest.org/529-savings-plans/
Connecticut	Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://www.aboutchet.com/
Delaware	Up to $1,000 deduction for single filers, up to $2,000 for joint filers	https://www.fidelity.com/529-plans/Delaware
District of Columbia	Up to $4,000 deduction for single filers, up to $8,000 for joint filers	https://www.dccollegesavings.com/
Florida	No state income tax	https://www.myfloridaprepaid.com/savings-plan/
Georgia	Up to $4,000 deduction for single filers, up to $8,000 for joint filers	https://www.path2college529.com/why/benefits
Hawaii	No state tax deduction allowed	https://www.hi529.com/
Idaho	Up to $6,000 deduction for single filers, up to $12,000 for joint filers	https://www.idsaves.org/
Illinois	Up to $10,000 deduction for single filers, up to $20,000 for joint filers	https://brightstart.com/
Indiana	20% tax credit on contributions up to $5,000	https://www.collegechoicedirect.com/
Iowa	Deductions up to $4,028 for each beneficiary	https://www.collegesavingsiowa.com/
Kansas	Up to $3,000 deduction for single filers, up to $6,000 for joint filers	https://www.learningquest.com/home.html
Kentucky	No state tax deduction allowed	https://www.kysaves.com/
Louisiana	Up to $2,400 deduction for single filers, up to $4,800 for joint filers	https://www.startsaving.la.gov/
Maine	Up to $1,000 deduction for single filers, up to $2,000 for joint filers	https://www.nextgenforme.com/
Maryland	Up to $2,500 deduction for single filers, up to $5,000 for joint filers	https://maryland529.com/
Massachusetts	Up to $1,000 deduction for single filers, up to $2,000 for joint filers	https://www.mefa.org/save/u-fund-college-investing-plan
Michigan	Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://www.misaves.com/learn/how-does-a-529-plan-work
Minnesota	Up to $1,500 deduction for single filers, up to $3,000 for joint filers	https://www.mnsaves.org/
Mississippi	Up to $10,000 deduction for single filers, up to $20,000 for joint filers	https://treasury.ms.gov/for-citizens/college-savings-mississippi/
Missouri	Up to $8,000 deduction for single filers, up to $16,000 for joint filers	https://www.missourimost.org/home.html
Montana	Up to $3,000 deduction for single filers, up to $6,000 for joint filers	https://achievemontana.com/
Nebraska	Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://nest529advisor.com/
Nevada	No state income tax	https://futurepath529.com/home/why-529.html
New Hampshire	No state income tax	https://www.nh.gov/treasury/college-savings/unique.htm
New Jersey	Up to $10,000 deduction so long as the gross income is $200,000 or less	https://www.njbest.com/
New Mexico	100% of contribution amount deductible	https://www.theeducationplan.com/
New York	Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://www.nysaves.org/home.html
North Carolina	No state tax deduction allowed	https://www.cfnc.org/save-for-college/
North Dakota	Up to $5,000 deduction for single filers, up to $10,000 for joint filers	https://www.collegesave4u.com/
Ohio	Up to $4,000 deduction per beneficiary, per year	https://www.collegeadvantage.com/
Oklahoma	Up to $10,000 deduction for single filers, up to $20,000 for joint filers	https://www.oklahoma529.com/
Oregon	$170/$340 tax credit for single/joint filers with annual income < $30k, different credit amounts for different income buckets	https://www.oregoncollegesavings.com/
Pennsylvania	Up to $18,000 deduction for single filers, up to $36,000 for joint filers	https://www.pa529.com/
Rhode Island	Up to $1,000 deduction for single filers, up to $2,000 for joint filers	https://www.collegeboundsaver.com/home.html
South Carolina	100% of contribution amount deductible	https://futurescholar.com/about-future-scholar/why-future-scholar/
South Dakota	No state income tax	https://www.collegeaccess529.com/?type=none
Tennessee	No state income tax	https://tnstars.treasury.tn.gov/
Texas	No state income tax	https://www.texascollegesavings.com/
Utah	Up to $2,410/$4,820 deduction for single/joint filers, or 4.65% tax credit on contributions of $2,410/$4,820 for single/joint filers	https://my529.org/
Vermont	10% tax credit for contributions up to $2,500/$5,000 for single/joint filers	https://www.vheip.org/
Virginia	Up to $4,000 deduction	https://www.virginia529.com/
Washington	No state income tax	https://529.wa.gov/
West Virginia	100% of contribution amount deductible	https://www.smart529.com/home.html
Wisconsin	Up to $4,000 deduction for single filers, up to $8,000 for joint filers	https://www.edvest.com/
Wyoming	No state income tax	No 529 Plan

Now What?

• Assess State Tax Benefits: Evaluate if your state’s 529 plan offers tax deductions or credits that outweigh the benefits of plans from other states. Consider both the immediate tax benefits and the potential long-term savings.

• Match Investments with Goals: Choose investment options within the 529 plan that match your risk tolerance and the time horizon until the funds will be needed. This alignment is crucial for optimizing growth relative to potential risk.

• Focus on Cost Efficiency: Whenever possible, select plans that offer low fees and flexible contribution options. Lower fees can significantly enhance the growth potential of your investments, maximizing the amount available for educational expenses.

Concluding Remarks

Choosing the right 529 College Savings Plan is crucial for securing your family’s educational future. By comparing the different features of each plan—like state-specific tax benefits, costs, and overall performance—you can ensure your savings not only meet but potentially exceed your educational funding goals. This strategic approach helps maximize your investment and supports your family’s educational needs down the line.