Will I Get a State Tax Break If I Use an Out-of-State 529 Plan?

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Kathryn Flynn

By Kathryn Flynn

March 19, 2024

For most families, a 529 plan is the most effective way to save for college. Contributions are made with post-tax dollars, earnings grow tax-deferred, and distributions are completely tax-free when used to pay for qualified higher education expenses.

Depending on where you live and which 529 plan you contribute to, you may also be eligible for state income tax benefits.

Can you get a state tax deduction for an out-of-state 529 plan contribution?

The answer to whether you can get an out-of-state 529 tax deduction is generally no, but there are some exceptions.

Over 30 states offer a state income tax deduction or state income tax credit for 529 plan contributions. However, in most states, you must contribute to an in-state plan to be eligible for a tax break on your state income tax return. In these states, taxpayers who deduct ineligible out-of-state 529 plan contributions will be subject to taxes and possible civil penalties.

For example, Illinois offers a state income tax deduction for contributions up to $20,000 for married couples filing jointly, but only if the contributions are made to an Illinois-sponsored 529 plan. If an Illinois resident contributes to New York’s 529 College Savings Program, the contributions are not deductible from Illinois taxable income.

However, nine tax-parity states allow residents to claim a state income tax deduction or credit for contributions to any 529 plan:

  • Arizona
  • Arkansas
  • Kansas
  • Maine
  • Minnesota
  • Missouri
  • Montana
  • Ohio
  • Pennsylvania

529 tax deduction amounts for eligible states

Here’s how much you can deduct on your taxes in the nine tax parity states that allow tax deductions for out-of-state 529 plan contributions.

Home State
Yearly State Income Tax Deduction or Credit for 529 plan Contributions
Contributions to any state’s 529 plan up to $2,000 ($4,000 if married) are deductible
Contributions to an Arkansas 529 plan up to $5,000 ($10,000, if married) or a non-Arkansas plan up to $3,000 ($6,000) are deductible
Contributions to any state’s 529 plan up to $3,000 ($6,000 if married) are deductible
Individual Maine state income return filers can deduct up to $1,000 per Designated Beneficiary per tax year for their total, combined contributions to any Section 529 Program during the tax year. The deduction is not available to taxpayers with federal adjusted gross income over $100,000 (single or married filing separately) or $200,000 (married filing jointly or head of household).
Contributions to any state’s 529 plan up to $1,500 ($3,000 if married) are deductible, or residents who meet certain income requirements may claim a tax credit equal to 50% of contributions (max $500)
Contributions to any state’s 529 plan up to $8,000 ($16,000 if married) are deductible
Contributions to any state’s 529 plan up to $3,000 ($6,000 if married) are deductible
Contributions of up to $4,000 per beneficiary per year (any filing status) are deductible in computing Ohio taxable income, with an unlimited carryforward of excess contributions.
Contributions to any state’s 529 plan up to the gift tax exclusion amount ($18,000 in 2024) are deductible.

Am I able to use any state’s 529 plan?

529 plans are state-sponsored, but that doesn’t always mean you must use your in-state 529 plan to save for college. Any 529 plan can be used to pay for college in any state. You can use almost any state’s plan, except six 529 plans that have state residency requirements:

State tax-deferred growth and state tax-free withdrawals

Like federal 529 plan tax benefits, most states offer state tax-deferred growth and state-tax-free distributions when the money is used to pay for qualified education expenses.

Alabama is the only exception. For taxpayers in Alabama, distributions from an out-of-state 529 plan are not exempt from state income tax. The earnings portion of the distribution (whether qualified or non-qualified) will be reported as income on the taxpayer’s Alabama state tax return.

When you may want to consider an out-of-state 529 plan

Sometimes, it makes sense to use an out-of-state 529 plan, even if it means you’ll miss out on a state tax benefits. Low fees are a more important criterion for families with young children than state income tax savings when selecting a 529 plan. A state income tax deduction or credit generally provides greater value once the child enters high school.

A good place to start:

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