Finding room in your budget for college savings can be challenging. Some families may prefer to make lump sum 529 plan contributions throughout the year instead of, or in addition to, automated monthly contributions. A lump sum lump may come unexpectedly, such as from an inheritance or lottery winnings, or you may have a recurring annual windfall such as a federal or state income tax refund.

How a state income tax refund can help grow a 529 plan

If you’re expecting a state income tax refund this year, consider depositing all or a portion of the refund for your child’s 529 plan. Your 529 plan contribution will grow-tax deferred and the funds can be withdrawn tax-free to pay for qualified education expenses. Contributing a tax refund each year to a 529 plan will help you reach your college savings goal and reduce the amount your child will have to borrow in student loans.

For example, a family who saves $250 each month in a 529 plan will accumulate around $95,000 by the time their child enters college, assuming a 6% annual investment return. If the same family were to save an additional $500 per year that they received from a state income tax refund, they could accumulate an additional $15,000 in savings.

Reinvest state income tax benefits for an additional 529 plan boost

Over 30 states offer a state income tax credit or state income tax deduction for 529 plan contributions. Families can redirect their state income tax benefit into a 529 plan by directly depositing their state income tax refund.

Taxpayers are usually required to use an in-state 529 plan to be eligible for a state income tax benefit, except in Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana and Pennsylvania, where residents are eligible to claim a state tax benefit for investing in any 529 plan.

Most states limit the amount of annual contributions eligible for a state income tax benefit, but 529 plan contributions are fully deductible in Colorado, New Mexico, South Carolina and West Virginia. 

How to deposit your state income tax refund into a 529 plan

Every state offers the option to directly deposit your state income tax refund into a checking or savings account. Families may deposit a state income tax refund into a bank account and then transfer the funds to a 529 plan.

17 states simplify the process by allowing taxpayers to contribute their state income tax refund directly into a 529 plan. Some of these states require the taxpayer to enter their 529 plan’s routing number on the state income tax return form, and some only require the 529 plan account owner’s account number or social security number.

The following table lists state that allow state income tax refunds to be directly deposited into a 529 plan, and the requirements for doing so.

Instructions for contributing a state income tax refund directly to a 529 plan

State

529 Plan

Select Type of Account

Account Number

Routing Number

Alabama

CollegeCounts 529 Fund

Savings

3529 followed by your CollegeCounts account number

104910795

Alaska

John Hancock Freedom 529

Checking

99020554000153791 

 

011000028

 

Alaska

The University of Alaska College Savings Plan

Checking

99020554000153793

 

011000028

 

Arizona

Fidelity Arizona College Savings Plan

Checking

39900001

Followed by your Fidelity account number

101205681

 

California

ScholarShare 529

Checking

Enter “CA” as prefix, your 4-digit investment portfolio number, and your ScholarShare account number (add leading zeroes if account number is less than 11-digits)

 

011000028

 

Colorado

Direct Portfolio

CollegeInvest 529

534 followed by your Direct Portfolio account number

011001234

 

 

Smart Choice

CollegeInvest 529

Your Smart choice account number

107005047

 

Stable Value Plus

CollegeInvest 529

52500 followed by your Stable Value Plus account number

011302920

 

Scholar’s Choice

CollegeInvest 529

Enter 6680, followed by the account owner’s Social Security Number, followed by 9999

011001234

Connecticut

CHET Advisor and CHET Direct 529 College Savings Plans

CHET Plan Account

Enter your 4-digit investment option, followed by your CHET account number (both can be found on your statement)

N/A

Delaware

Delaware College Investment Plan

Checking

39900001

followed by your Fidelity account number

101205681

 

Idaho

IDeal Idaho College Savings Program

Checking

541 followed by your 11-digit IDeal 529 account number

011001234

 

Illinois

Bright Start Direct-Sold College Savings Program

Savings

1111514 followed by your 10-digit Bright Start account number

 

101000695

 Bright Directions Advisor-Guided 529 College Savings Program

Savings

529 followed by your 9-digit Bright Directions account number

104910795

 

Massachusetts

U.Fund College Investing Plan

Checking

39900001

Followed by your Fidelity account number

101205681

 

New Hampshire

UNIQUE College Investing Plan

Checking

39900001

followed by your Fidelity account number

101205681

 

 

Fidelity Advisor 529 Plan

Checking

39900001

followed by your Fidelity account number

101205681

 

New Mexico

Scholar’s Edge

Savings

1111532 followed by your 10-digit Scholar’s Edge account number

101000695

 

New York

New York’s 529 College Savings Program

Complete Allocation of Refund Form IT-195 with NY state income tax return

Enter your NY 529 Plan account number

011001234

Ohio

CollegeAdvantage 529 Plans

CollegeAdvantage 529 Account

Enter your CollegeAdvantage 529 account number

N/A

Oregon

Oregon College Savings Plan

Select Oregon College Savings Plan on Schedule OR-529

Enter your 13-digit Oregon College Savings Plan account number

N/A

 

MFS 529 Savings Plan

Select MFS 529 Savings Plan on Schedule OR-529 with OR state income tax return

Enter 4-digit portfolio number, and 11-digit MFS 529 Savings Plan account number

N/A

Utah

my529

Select voluntary subtractions from refund and enter amount to be deposited into your my529 account

N/A

N/A

Virginia

Invest529

Complete Schedule VAC with VA state income tax return

Enter your Invest529 account number

N/A

 

Prepaid529

Complete Schedule VAC with VA state income tax return

Enter your Prepaid 529 account number

N/A

 

CollegeAmerica

Complete Schedule VAC with VA state income tax return

Enter 253 followed by your 4-digit fund number and 10-digit account number

12100024

Source: Savingforcollege.com research