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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

Alaska

No state income tax

Arizona

Up to $2,000 deduction for single filers, up to $4,000 for joint filers

Arkansas

Up to $5,000 deduction for single filers, up to $10,000 for joint filers

California

No state tax deduction allowed

Colorado

100% of contribution amount deductible

Connecticut

Up to $5,000 deduction for single filers, up to $10,000 for joint filers

Delaware

Up to $1,000 deduction for single filers, up to $2,000 for joint filers

District of Columbia

Up to $4,000 deduction for single filers, up to $8,000 for joint filers

Florida

No state income tax

Georgia

Up to $4,000 deduction for single filers, up to $8,000 for joint filers

Hawaii

No state tax deduction allowed

Idaho

Up to $6,000 deduction for single filers, up to $12,000 for joint filers

Illinois

Up to $10,000 deduction for single filers, up to $20,000 for joint filers

Indiana

20% tax credit on contributions up to $5,000

Iowa

Deductions up to $4,028 for each beneficiary

Kansas

Up to $3,000 deduction for single filers, up to $6,000 for joint filers

Kentucky

No state tax deduction allowed

Louisiana

Up to $2,400 deduction for single filers, up to $4,800 for joint filers

Maine

Up to $1,000 deduction for single filers, up to $2,000 for joint filers

Maryland

Up to $2,500 deduction for single filers, up to $5,000 for joint filers

Massachusetts

Up to $1,000 deduction for single filers, up to $2,000 for joint filers

Michigan

Up to $5,000 deduction for single filers, up to $10,000 for joint filers

Minnesota

Up to $1,500 deduction for single filers, up to $3,000 for joint filers

Mississippi

Up to $10,000 deduction for single filers, up to $20,000 for joint filers

Missouri

Up to $8,000 deduction for single filers, up to $16,000 for joint filers

Montana

Up to $3,000 deduction for single filers, up to $6,000 for joint filers

Nebraska

Up to $5,000 deduction for single filers, up to $10,000 for joint filers

Nevada

No state income tax

New Hampshire

No state income tax

New Jersey

Up to $10,000 deduction so long as the gross income is $200,000 or less

New Mexico

100% of contribution amount deductible

New York

Up to $5,000 deduction for single filers, up to $10,000 for joint filers

North Carolina

No state tax deduction allowed

North Dakota

Up to $5,000 deduction for single filers, up to $10,000 for joint filers

Ohio

Up to $4,000 deduction per beneficiary, per year

Oklahoma

Up to $10,000 deduction for single filers, up to $20,000 for joint filers

Oregon

$170/$340 tax credit for single/joint filers with annual income < $30k, different credit amounts for different income buckets

Pennsylvania

Up to $18,000 deduction for single filers, up to $36,000 for joint filers

Rhode Island

Up to $1,000 deduction for single filers, up to $2,000 for joint filers

South Carolina

100% of contribution amount deductible

South Dakota

No state income tax

Tennessee

No state income tax

Texas

No state income tax

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

Vermont

10% tax credit for contributions up to $2,500/$5,000 for single/joint filers

Virginia

Up to $4,000 deduction

Washington

No state income tax

West Virginia

100% of contribution amount deductible

Wisconsin

Up to $4,000 deduction for single filers, up to $8,000 for joint filers

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.

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