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Alabama to approve tax deduction for in-state 529

(May 20, 2008) - The Alabama Legislature earlier this month passed a $5,000 annual income tax deduction for contributions to an Alabama 529 plan, contingent on the approval of a revenue-raising companion bill. The companion bill has now passed, clearing the way for Alabama Governor Bob Riley to sign both pieces of legislation.

Once enacted, Alabama taxpayers will be allowed to deduct up to $5,000 each year from Alabama gross income for their contributions into to the Alabama 529 prepaid and savings plans. The law is retroactive to January 1, 2008.

Under the bill (HB 43) Alabama taxpayers will be required to include a nonqualified withdrawal, plus 10 percent of the amount of the withdrawal, in Alabama gross income.

The deduction has been a priority for Alabama Treasurer Kay Ivey. The bills were sponsored by Rep. Richard Lindsey.

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