In addition to federal tax benefits many states, offer full or partial state tax deductions for contributions to a 529 plan. Over 30 states, including the District of Columbia have such incentives available.
Seven of these states offer taxpayers a deduction for contributions to any state’s 529 plan: Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana and Pennsylvania.
Seven states currently have a state income tax, but do not offer a deduction for contributions: California, Delaware, Hawaii, Kentucky, Maine, New Jersey, and North Carolina.
While tax deductions can make opening your own state’s plan seem particularly attractive, they should not be your only consideration when choosing a 529 plan. Attributes such as fees and performance must always be taken into account before you enroll in a 529 plan. In some cases, better investment performance of another state’s plan (where earnings are compounded) can outweigh the benefits of a tax deduction. To get a better idea of how much your state tax benefit is worth, check the map below: