FinAid | Saving for College | State Tax Deductions for 529 Contributions

State Tax Deductions for 529 Contributions

Many states give the account owner a full or partial state income tax deductions for their contributions to the state's section 529 plans. (Contributions to other states' section 529 plans are generally not deductible in your home state.)

The following table shows the limits, if any, on state income tax deductions for section 529 plan contributions. If there is a limit on the amount of the deduction, many states allow carry forward of excess contributions to future income tax returns.

Only Pennsylvania, Arizona, Maine and Kansas provide for state tax parity, where contributions to any state plan are eligible for the state's income tax deduction. An Illinois class action lawsuit, Maryam Ahmad v. Illinois Department of Revenue (filed May 15, 2007), challenges the constitutionality of the Illinois tax break which does not provide for tax parity. A related case concerning municipal bonds, Davis v. Department of Revenue of Kentucky, was ruled unconstitutional in 2006 by the Kentucky appellate court (and let stand by the Kentucky Supreme Court) and is expected to be heard by the US Supreme Court in late 2007 or early 2008. (A previous case in Ohio, Shaper v. Tracy, affirmed the state's right to discriminate against other states' muncipal bonds. This case was appealed to the US Supreme Court who declined to hear the case.) The US Supreme Court ruling in that case might or might not affect the Illinois lawsuit. At issue is the commerce clause of the US Constitution, which reserves to Congress the right to regulate interstate commerce.

State 529 Deduction

Alabama --

Alaska No state income tax

Arkansas $5,000 per parent ($10,000 joint)

Arizona $750 single/$1,500 joint (any state plan)

California --

Colorado Full amount of contribution

Connecticut $5,000 per parent ($10,000 joint)

Delaware --

Florida No state income tax

Georgia $2,000 per beneficiary

Hawaii --

Idaho $4,000 single/$8,000 joint

Illinois Full amount of contribution (savings plan only)

Indiana 20% tax credit up to $1,000

Iowa $2,180 single/$4,360 joint per account

Kansas $3,000 single/$6,000 joint per beneficiary (any state plan)

Kentucky --

Louisiana $2,400 per beneficiary

Maine $250 per beneficiary starting 2007 (any state plan)

Maryland $2,500 per account, 10 year carryforward

Massachusetts --

Michigan $5,000 single/$10,000 joint

Minnesota --

Mississippi $10,000 single/$20,000 joint

Missouri $8,000 single/$16,000 joint

Montana $3,000 single/$6,000 joint

Nebraska $1,000 per tax return

Nevada No state income tax

New Hampshire --

New Jersey --

New Mexico Full amount of contribution

New York $5,000 single/$10,000 joint

North Carolina $2,000 single/$4,000 joint

North Dakota --

Ohio $2,000 per beneficiary per contributor or married couple with unlimited carryforward

Oklahoma $2,500 per beneficiary per contributor

Oregon $2,000 per year

Pennsylvania $12,000 per contributor per child (any state plan)

Rhode Island $500 single/$1,000 joint, with carryforward

South Carolina Full amount of contribution

South Dakota No state income tax

Tennessee --

Texas No state income tax

Utah Either a deduction ($1,620 single/$3,240 jointly) or tax credit ($87 single/$173 joint)

Vermont 10% tax credit up to $250 per taxpayer per beneficiary

Virginia $2,000 per account per year (no limit age 70 and older)

Washington, DC $3,000 single/$6,000 joint

Washington No state income tax

West Virginia Full amount of contribution

Wisconsin $3,000 per dependent beneficiary, self, or grandchild

Wyoming No state income tax