Massachusetts 529 plans offer the standard federal and state tax benefits, as well as a state income tax deduction based on contributions to the state’s 529 plan.
Like most 529 plans, the Massachusetts 529 plan has state tax benefits that mirror the federal tax benefits:
- Contributions are eligible for the annual gift tax exclusion of $15,000 ($30,000 for a couple giving jointly)
- Contributions above the annual gift tax exclusion limit are eligible for 5-year gift tax averaging, permitting lump sum contributions of up to $75,000 ($150,000 for a couple giving jointly) without incurring gift taxes or using up the lifetime gift tax exclusion
- Earnings accumulate on a tax-deferred basis
- Qualified distributions for K-12 tuition and qualified higher education expenses are entirely tax-free
- The earnings portion of a non-qualified distribution is taxed at the beneficiary’s rate plus a 10% federal tax penalty
Contributions to the Massachusetts 529 plan are tax-deductible on Massachusetts state income tax returns.
- The Massachusetts state income tax deduction is up to $2,000 per year for taxpayers who are married filing jointly and $1,000 per year for single filers
- There is no carryforward for contributions above the tax deduction’s annual limit
- The state income tax deduction is valid from 2017 through 2021