Can I Deduct Contributions to a 529 Account?

Parents playing soccer with their two young sons in the park during a sunny day.

A 529 plan, which is also known as a qualified tuition plan, is an effective investment tool you can use to save money for your children’s college expenses. While the Internal Revenue Service does not permit account owners to take a 529 plan tax deduction on their federal income taxes, it may be possible to claim a state tax deduction for contributions you make to the plan. However, the rules for taking this deduction vary by state.

In some states, such as Missouri and Iowa, only the account owner can take a 529 plan tax deduction for contributions made to their plan. In other states, non-owners can also take deductions for the money they pay into these accounts. Most of these states will only approve the deduction if the non-owner is related to the account’s beneficiary in a certain way. For example, Wisconsin allows a beneficiary’s aunts and uncles, great-grandparents, grandparents, parents, and guardians to claim a deduction for contributions made to the beneficiary’s 529 plan.

In a few states, tax law prohibits non-owners from taking deductions for the contributions they make to a 529 account, but it allows the account’s owner to claim the 529 plan tax deduction instead. For example, if a grandparent contributes to an account that the parent of the beneficiary owns, the parent can claim a deduction for the grandparent’s contribution.

Though some states allow residents to take a 529 plan tax deduction for contributions no matter where they invest, most states will only approve deductions for contributions made to these plans if the plan is sponsored by the state in which taxes are filed. All states limit the maximum deduction an account owner can take for 529 plan contributions in any single year.

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