Texas 529 plans offer the standard federal and state tax benefits, but do not offer any special state income tax benefits on contributions to the Texas College Savings Plan or Lonestar 529 Plan. Texas does not have a personal state income tax.

Like most 529 plans, the Texas 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 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 and is subject to a 10% federal tax penalty

Contributions to the Texas 529 plans are not tax-deductible on state income tax returns. Texas is one of nine states that do not have a state income tax and therefore do not offer a tax deduction or tax credit based on contributions to the state’s 529 plan.