529 PLANS

529 News

Recent State News

Louisiana ABLE plan is now available for residents with disabilities

(July 3, 2017) - LA ABLE accounts offer residents with disabilities a tax-free way to save without affecting eligibility for government benefits.

Minnesota introduces new state tax benefits for residents

(June 29, 2017) - Minnesota taxpayers now have the option of claiming either a tax credit or deduction for contributions to any state 529 plan. Only one tax benefit can be claimed in a given tax year. Minnesota taxpayers may:

• Deduct up to $3,000 for a married couple filing jointly or $1,500 for all other filers for contributions made to a qualified 529 account.
• Instead, may opt for a non-refundable tax credit of half contributions up to $500, subject to phase-out starting at a federal adjusted gross income of $75,000 (single filer). The credit is reduced by any withdrawals made by that taxpayer during the taxable year.

All prior year tax benefits are subject to recapture in the event of a nonqualified distribution.
For additional details see Minnesota HF 1, 1st Engrossment - 90th Legislature, 2017 1st Special Session.

State tax deduction or credit for contributions:

Minnesota taxpayers may claim either a tax deduction or a tax credit depending on their income.
A $1,500 tax deduction ($3,000 for a married couple filing jointly) can be claimed against Minnesota income tax.

Alternatively, a tax credit equal to 50% of the contributions to accounts, reduced by any withdrawals, may be claimed with a maximum credit amount of up to $500, subject to a phase-out schedule starting at a federal adjusted gross income of $75,000.

State tax recapture provisions:

In the case of a nonqualified or taxable distribution, the taxpayer is liable to state recapture of their tax benefit in the form of an additional tax for all prior years in which the benefit was claimed. The additional tax is determined by a statutory formula that multiplies the amount of the non-qualified withdrawal or taxable withdrawal by a "credit ratio" and a "subtraction ratio.""

• The "credit ratio" is a ratio of (i) two times the total amount of credits that the account owner claimed for contributions to the accounts to (ii) the total contributions in all taxable years to the account owners accounts.
• The “subtraction ratio” is the ratio of (i) the total amount of subtractions that an account owner claimed for contributions to the account owner’s accounts to (ii) the total contributions in all taxable years to the account owner’s accounts.

The additional tax is calculated as 50% of the product of the credit ratio multiplied by the amount of the non-qualified or taxable withdrawal, plus 10% of the product of the subtraction ratio multiplied by the amount of the non-qualified or taxable withdrawal.

However, the Minnesota additional tax will not apply to any portion of a Non-Qualified Withdrawal that is subject to the federal additional tax.

Pennsylvania voting to eliminate parity state tax deduction

(June 17, 2017) - On June 20, 2017 the Pennsylvania House Finance Committee will vote on HB1385. Pennsylvania currently offers residents a tax deduction for contributions to any state's 529 plan, but HB1385 bill proposes limiting the benefit to contributions made only to Pennsylvania's PA 529 College Savings Program.

For more information, click here.

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