COLLEGE SAVINGS 101

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Save it forward: States that allow you to carry benefits into future tax years
http://www.savingforcollege.com/articles/save-it-forward-future-tax-years-1009

Posted: 2016-12-14

by Brian Boswell

Financial Professional Content

There are a few states that allow 529 account owners to make contributions beyond the maximum tax benefit and claim that benefit in future years. Having a carryforward available is great because it allows the investor to contribute more up-front without worrying about holding-off for future year contributions. The account owner increases their potential return on one-time contributions through both the deduction and greater potential compound returns.

For example, Connecticut has a tax benefit that allows taxpayers to deduct up to $5,000 per year per individual ($10,000 if married filing jointly). However, any contributions beyond that amount in a single year can be used to claim a deduction over the next five years. Considering the prior example for an individual taxpayer:

  • If the account owner contributes $15,000, they can claim the full $5,000 tax benefit this year and the next two years.
  • If the account owner contributes $7,500, they can claim $5,000 this year and the remaining $2,500 deduction next year
  • If the account owner contributes $40,000, they can claim $5,000 this year and the next five years, but they will not be able to claim $10,000, since you can only carry the deduction forward five years.

You can view these benefits in detail using our State Tax Calculator. The following states currently allow tax deduction carryforwards.

Connecticut

Contributions to a Connecticut 529 plan of up to $5,000 per year by an individual, and up to $10,000 per year by a married couple filing jointly, are deductible in computing Connecticut taxable income, with a five-year carryforward of excess contributions.

District of Columbia

Contributions to a District of Columbia 529 plan of up to $4,000 per year by an individual, and up to $8,000 per year by married taxpayers who each make contributions to their own account, are deductible in computing District of Columbia taxable income, with a five-year carryforward of excess contributions.

Maryland

Contributions to the Maryland College Investment Plan of up to $2,500 per beneficiary per year by an individual, and up to $5,000 per beneficiary per year by married taxpayers who each make contributions to their own accounts, are deductible in computing Maryland taxable income, with a 10-year carryforward of excess contributions.

Ohio

Contributions, including rollover contributions, to an Ohio 529 plan of up to $2,000 per beneficiary per year (any filing status) are deductible in computing Ohio taxable income, with an unlimited carryforward of excess contributions.

Oklahoma

Contributions to an Oklahoma 529 plan, including rollover contributions, of up to $10,000 per year by an individual, and up to $20,000 per year by a married couple filing jointly, are deductible in computing Oklahoma taxable income, with a five-year carryforward of excess contributions.

Oregon

Contributions to an Oregon 529 plan of up to $2,310 (for 2016) by an individual, and up to $4,620 by a married couple filing jointly, are deductible in computing Oregon taxable income, with a four-year carryforward of excess contributions.

Virginia

Contributions to a Virginia 529 plan of up to $4,000 per account per year are deductible in computing Virginia taxable income, with an unlimited carryforward of excess contributions. Contributions are fully deductible in the year of contribution for taxpayers at least 70 years of age.

Wisconsin

Contributions to a Wisconsin 529 plan of up to $3,100 per beneficiary per year (any filing status) are deductible in computing Wisconsin taxable income. The maximum annual deductible will be increased annually to reflect inflation. Contributions in excess of the maximum annual limit may be carried forward to one or more future years and deducted up to the then annual maximum deductible amount each year until all amounts invested have been deducted from Wisconsin taxable income.

Financial Professional Content

There are a few states that allow 529 account owners to make contributions beyond the maximum tax benefit and claim that benefit in future years. Having a carryforward available is great because it allows the investor to contribute more up-front without worrying about holding-off for future year contributions. The account owner increases their potential return on one-time contributions through both the deduction and greater potential compound returns.

For example, Connecticut has a tax benefit that allows taxpayers to deduct up to $5,000 per year per individual ($10,000 if married filing jointly). However, any contributions beyond that amount in a single year can be used to claim a deduction over the next five years. Considering the prior example for an individual taxpayer:

  • If the account owner contributes $15,000, they can claim the full $5,000 tax benefit this year and the next two years.
  • If the account owner contributes $7,500, they can claim $5,000 this year and the remaining $2,500 deduction next year
  • If the account owner contributes $40,000, they can claim $5,000 this year and the next five years, but they will not be able to claim $10,000, since you can only carry the deduction forward five years.

You can view these benefits in detail using our State Tax Calculator. The following states currently allow tax deduction carryforwards.

Connecticut

Contributions to a Connecticut 529 plan of up to $5,000 per year by an individual, and up to $10,000 per year by a married couple filing jointly, are deductible in computing Connecticut taxable income, with a five-year carryforward of excess contributions.

District of Columbia

Contributions to a District of Columbia 529 plan of up to $4,000 per year by an individual, and up to $8,000 per year by married taxpayers who each make contributions to their own account, are deductible in computing District of Columbia taxable income, with a five-year carryforward of excess contributions.

Maryland

Contributions to the Maryland College Investment Plan of up to $2,500 per beneficiary per year by an individual, and up to $5,000 per beneficiary per year by married taxpayers who each make contributions to their own accounts, are deductible in computing Maryland taxable income, with a 10-year carryforward of excess contributions.

Ohio

Contributions, including rollover contributions, to an Ohio 529 plan of up to $2,000 per beneficiary per year (any filing status) are deductible in computing Ohio taxable income, with an unlimited carryforward of excess contributions.

Oklahoma

Contributions to an Oklahoma 529 plan, including rollover contributions, of up to $10,000 per year by an individual, and up to $20,000 per year by a married couple filing jointly, are deductible in computing Oklahoma taxable income, with a five-year carryforward of excess contributions.

Oregon

Contributions to an Oregon 529 plan of up to $2,310 (for 2016) by an individual, and up to $4,620 by a married couple filing jointly, are deductible in computing Oregon taxable income, with a four-year carryforward of excess contributions.

Virginia

Contributions to a Virginia 529 plan of up to $4,000 per account per year are deductible in computing Virginia taxable income, with an unlimited carryforward of excess contributions. Contributions are fully deductible in the year of contribution for taxpayers at least 70 years of age.

Wisconsin

Contributions to a Wisconsin 529 plan of up to $3,100 per beneficiary per year (any filing status) are deductible in computing Wisconsin taxable income. The maximum annual deductible will be increased annually to reflect inflation. Contributions in excess of the maximum annual limit may be carried forward to one or more future years and deducted up to the then annual maximum deductible amount each year until all amounts invested have been deducted from Wisconsin taxable income.

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