Tax Benefits of Massachusetts 529 Plans

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 $17,000 ($34,000 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 $80,000 ($160,000 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