[Video] Understanding the 529 State Tax Deduction

by Financial Design Studio, Inc. / September 6, 2018

Here’s an interesting fact about 529 plans:  All 50 states have their own plans. Out of those 50, 30 plus states allow for a state tax deduction.  Out of those 30 there are 6 that allow you to contribute to any state but take the deduction on your state tax return.

Let’s explain this in more detail. You’ll need to research your specific state if you are considering contributing and receiving a tax benefit in doing so.  We will use the state of Illinois as an example. In Illinois if you contribute to a 529 plan in the state you get to receive a tax deduction as an Illinois resident.

If you contribute $10,000 as a single tax filer you can save the State Income Tax of 4.95%, saving a total of $495 in taxes in the year of contribution.  As a Married Filing Jointly Filer you could contribute up to $20,000 and receive a tax deduction of $990.

Another thing to consider is if you opened a plan in another state years ago.  If you contributed to the account of another state because their investments were better at the time, you may not have received a tax benefit for those contributions.  You can actually roll over those contributions from the other state’s plan into the Illinois plan and receive the tax deduction in the year that you make the rollover.

For example, if you had $10,000 in a Virginia state plan and rolled it over to the Illinois 529 plan you could receive the tax deduction in this year.  

So not only do you want to consider what’s available in your own state, but think about any existing plans you have that could benefit you too.

Financial Design Studio How To Save For CollegeGet Your “How To Save For College” Resources Here!

Don’t let college expenses creep up on you as your child ages.

It only takes a little bit of planning and the right choice in investment accounts to prepare for this important event in your child’s future!

Access this free resource here. >>

Financial Design Request Resource Button

Ready to take the next step?

Schedule a quick call with our financial advisors.

Recommended Reading

Michelle Smalenberger and Shelly Nizysnki Reese on Becoming a not for profit

Podcast Episode 31: From Passion to Action: Becoming a Not-For-Profit with Shelley Nizynski Reese

In this episode Shelley Nizynski Reese, founder of A Better Life for Kids, shares her story of becoming a not-for-profit

Financial Advisors for High Net Worth Investors on Smart Holiday Shopping

Podcast Episode 30: Smart Holiday Shopping

In this episode, we discuss holiday shopping for for kids or adults, creating family traditions, finding bargains, and giving experiences.

Financial Design Studio, Inc.

We are financial advisors in Deer Park and Barrington, IL. A team with a passion for helping others design a path to financial success — whatever success means for you. Each of our unique insights fit together to create broad expertise, complete roadmaps, and creative solutions. We have seen the power of having a financial plan, and adjusting that plan to life. The result? Freedom from worrying about the future so you can enjoy today.