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State Tax Benefits of College Savings Plans

May 03, 2024

There are many choices for parents regarding how to save money for a child's higher education.  Starting early is always better than waiting years to begin.  But what is a parent to do? 

From savings accounts to purchasing shares of stock, you have many choices available. One option that has grown in popularity and use over the past thirty years is the 529 college savings plan1. These plans can offer choices that include both short-term conservative and long-term growth options. 

While you should consult with a financial advisor regarding which portfolio could work for your situation, it is important to also consider your income tax situation.  Each state offers at least one plan, but you are not required to choose a plan from your home state.  However, sometimes choosing an in-state plan may provide an income tax benefit. below are a few examples from Massachusetts, New York, and Vermont. Many states allow for a portion of a contribution to be tax deductible each year (see MA & NY below). Other states (see VT below) offer a state income tax credit.  

  • Massachusetts 529 Tax Benefit 
    • SINGLE FILERS $1,000/yr 
    • JOINT FILERS $2,000/yr
  • New York 529 Tax Benefit 
    • SINGLE FILERS $5,000/yr
    • JOINT FILERS $10,000/yr
  • Vermont 529 Tax Benefit
    • SINGLE FILERS, 10% UP TO $250/yr per beneficiary
    • JOINT FILERS, 10%  UP TO $500/yr per beneficiary

Whether a deduction or a credit applies is based on your state of residency. Should you choose to use an out-of-state plan, you will forgo these state tax benefits.  Other considerations should be considered when choosing a plan such as cost, access, investment selection, performance history, your income, and filing status. 

Contact us to discuss this or any other financial topic.

1 Forbes, What Is The New 529 Rule in 2024?, 2/2/24
You can request an Official Statement from the 529 investment provider which provides more information and which should be read carefully. You should consider the investment objectives, risks, charges and expenses associated with the Plan before investing. Investing involves risk, including the potential for loss of principal. Past performance does not guarantee future performance.