Tax Benefits of New York 529 Plans

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Mark Kantrowitz

By Mark Kantrowitz

October 22, 2018

In addition to the standard federal and state tax benefits, New York 529 plans offer a state income tax deduction based on up to $10,000 in contributions to the state’s 529 plans.

Like most 529 plans, New York’s 529 plans have 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 beyond the annual gift tax exclusion 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
  • Earnings accumulate on a tax-deferred basis
  • Qualified distributions for qualified higher education expenses are entirely tax-free
  • Distributions for K-12 tuition are considered to be qualified under federal law but not under state law
  • The earnings portion of a non-qualified distribution (including rollovers to out-of-state 529 plans) is taxed at the beneficiary’s rate and is subject to a 10% federal tax penalty
  • Non-qualified distributions may also be subject to recapture of state income tax benefits attributable to the distribution

Contributions to the New York 529 plans are deductible on state income tax returns. Contributions of up to $5,000 for single filers and $10,000 for joint filers may be deducted on New York state income tax returns. The contributor must be the account owner (or spouse of the account owner, on joint returns) to qualify for the state income tax deduction.

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