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529 Account Contributions – Taking Advantage of Year-End Benefits

Sigma Investment Counselors

December 11, 2020

As we approach the end of the calendar year, it’s a good time to review some last-minute planning items that can result in 2020 tax savings.

One such item is making contributions to 529 education plans in states that offer a tax-break on dollars that are deposited within the calendar year.  For example, Michigan offers a state level tax deduction on up to $5,000 of annual net contributions for single filers and $10,000 for a married couple filing jointly.  At a state tax rate of 4.25%, a $10,000 contribution into the Michigan Educational Savings Program (MESP) results in $425 of tax benefit for Michigan residents.

It should be noted that the rules for deductions differ from state-to-state.  At present, over 30 states offer a state income tax benefit for 529 plan contributions and most require the taxpayer to contribute to their home state’s 529 plan.  Seven states, including Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana, and Pennsylvania offer tax benefits for contributions to any 529 plan.

For those who are looking to optimize their contributions, we are more than happy to help.

All comments and suggestions are welcome.

Christopher W. Frayne, CFA, CFP®

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