"The state income tax deduction is a cherry on top of the long term tax benefits of 529 plans"
Austin, TX (PRWEB) December 28, 2009
For parents who have been thinking about making a contribution to an existing 529 college savings plan or opening a new account, the deadline to take advantage of certain state tax perks is looming.
529 plans allow parents to help set aside savings for college and not pay federal taxes on the investment gains. But many states offer another perk in the form of an upfront state tax deduction for contributions. Some states have a cut-off of December 31 to claim a deduction on the current year’s state tax return.
“The state income tax deduction is a cherry on top of the long term tax benefits of 529 plans,” says 529s.com editor Andrew Allemann. “Many people set up 529 plans with an eye to not paying taxes on investment gains, but some state residents can get a nice tax break up front, too.”
Illinois residents, for example, who contribute to their own state plans can deduct up to $10,000 for single filers and $20,000 for married filers. But deadlines are approaching to take advantage of the deductions on 2009 state tax returns. Both Illinois and New York require contributions to be postmarked by December 31 to qualify for 2009 returns.
Other states, such as Oklahoma, have later deadlines. These are often tied to the deadline for filing the state tax return, typically in conjunction with the federal tax return due date of April 15.
Allemann stresses that account owners should read all of the fine print and details before opening or contributing to a 529 savings plan. Most state tax benefits are only open to people who invest in their own states’ plans, and are often limited to parents’ contributions.
To understand what tax benefits are available when investing in the resident states' 529 plans, view the details of each states’ plans. Then be sure to read the state’s official literature and plan details before investing.
529s.com is a leading resource for parents and grandparents to learn about and evaluate 529 college savings plans. Details on all 50 states’ 529 savings plans are provided in an easy-to-read format. Parents should also download the 529s.com report “5 Biggest 529 Plan Mistakes” before opening a 529 savings account.