A 529 plan is a special investment account that many parents use to save for a child’s future higher education costs. One of the biggest benefits of a 529 plan is that contributions grow tax-free and may be withdrawn for education expenses without a penalty. However, some states also offer their own additional tax advantages.
529 tax deductions by state
There are no federal tax deductions for a 529 plan, but some states do offer deductions on in-state plans. Others offer tax breaks on 529 plan contributions in any state or utilize a tax credit. Depending on where you live or where you started your 529 plan, you could be eligible for one of these benefits.
| State | 529 deductions |
|---|---|
| Alabama | $5,000 single, $10,000 joint |
| Alaska | N/A |
| Arizona | $2,000 single or head of household, $4,000 joint |
| Arkansas | $5,000 single, $10,000 joint |
| California | N/A |
| Colorado | Full amount |
| Connecticut | $5,000 single, $10,000 joint |
| Delaware | N/A |
| Florida | N/A |
| Georgia | $4,000 single, $8,000 joint |
| Hawaii | N/A |
| Idaho | $6,000 single, $12,000 joint |
| Illinois | $10,000 single, $20,000 joint |
| Indiana | 20% tax credit on contributions (maximum credit $1,000) |
| Iowa | $3,522 per beneficiary |
| Kansas | $3,000 single, $6,000 joint |
| Kentucky | N/A |
| Louisiana | $2,400 single, $4,800 joint |
| Maine | N/A |
| Maryland | $2,500 single, $5,000 joint |
| Massachusetts | $1,000 single, $2,000 joint |
| Michigan | $5,000 single, $10,000 joint |
| Minnesota | $1,500 single, $3,000 joint |
| Mississippi | $10,000 single, $20,000 joint |
| Missouri | $8,000 single, $16,000 joint |
| Montana | $3,000 single, $6,000 joint |
| Nebraska | $10,000 single, $5,000 married filing separately |
| Nevada | N/A |
| New Hampshire | N/A |
| New Jersey | $10,000 per taxpayer |
| New Mexico | Full amount |
| New York | $5,000 single, $10,000 joint |
| North Carolina | N/A |
| North Dakota | $5,000 single, $10,000 joint |
| Ohio | Up to $4,000 per beneficiary |
| Oklahoma | $10,000 single, $20,000 joint |
| Oregon | $150 tax credit single, $300 tax credit joint |
| Pennsylvania | $15,000 single, $30,000 joint |
| Rhode Island | $500 single, $1,000 joint |
| South Carolina | Full amount |
| South Dakota | N/A |
| Tennessee | N/A |
| Texas | N/A |
| Utah | 4.95% tax credit per beneficiary |
| Vermont | 10% credit on up to $2,500 single, $5,000 joint (maximum $250 per taxpayer, per beneficiary) |
| Virginia | Up to $4,000 per account |
| Washington, D.C. | $4,000 single, $8,000 joint |
| Washington | N/A |
| West Virginia | Full amount |
| Wisconsin | $3,560 per beneficiary |
| Wyoming | N/A |
Which states have the best 529 plans?
You don’t have to choose the 529 plan offered by your state — you’re free to register with any state’s 529 plan as long as it’s available to nonresidents. Because a 529 plan is an investment, the option you choose will depend on your specific financial situation, investment time frame, state of residence and more.
If your home state offers a tax deduction, it’s likely the best option, since contributing to your 529 plan could save you money around tax time. However, if your state doesn’t have income tax, you may choose to shop around with other states’ plans.
When comparing 529 plans, examine their costs, benefits and track record of investment performance. Ohio, New York, Wisconsin, West Virginia and California are examples of states with plans that feature a variety of funds and portfolios, but you can find a list of all state plans on sites like the College Savings Plans Network.
What are the other tax benefits of 529 plans?
Contributions to your 529 plan grow on a tax-deferred basis, meaning any earnings will not be taxed on your federal tax return. You’re free to contribute up to your plan’s limits, or up to the total amount your beneficiary needs for qualified education expenses, though you may be subject to a gift tax if you contribute more than $14,000 per beneficiary per year.
The other major tax benefit of a 529 plan is that you can withdraw those funds without being taxed as long as you use the money for qualified education expenses. This includes tuition, fees, books and room and board.
If you use your 529 plan for nonqualified distributions, you’ll be subject to income tax, plus a 10 percent tax penalty on the plan’s earnings.
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