A 529 plan is a special investment account many parents use to save for a child’s future higher education costs. While many states offer substantial additional tax advantages, there are 13 that do not, and there is no federal tax incentive for annual 529 contributions. One of the biggest benefits of a 529 plan, however, is that contributions grow tax-free and may be withdrawn for education expenses without a penalty.

529 tax deductions by state

The 9 states with no income tax and thus no 529 deductions are Alaska, Florida, New Hampshire (no tax on earned wages), Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Four states that do charge income tax but do not have a 529 state tax deduction: California, Hawaii, Kentucky, and New Hampshire.

There are no federal tax deductions for a 529 plan, but some states offer deductions for 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 $1,000 single, $2,000 joint
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 $1,500)
Iowa $3,785 per beneficiary
Kansas $3,000 single, $6,000 joint
Kentucky N/A
Louisiana $2,400 single, $4,800 joint
Maine Up to $1,000 per beneficiary
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 $17,000 single, $34,000 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; VHEIP is the only eligible plan)
Virginia Up to $4,000 per account
Washington, D.C. $4,000 single, $8,000 joint
Washington N/A
West Virginia Full amount
Wisconsin $3,860 per beneficiary; $1,930 for divorced parents or those married filing separately
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 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 $17,000 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.

Bottom line

A 529 college savings plan can be a great way for families to save toward their children’s– or grandchildren’s– college educations, with contributions allowed to grow tax-free. In some states, contributions may also be deductible from state income taxes, an added bonus for investors looking to lower their taxable incomes.