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Compare State Deductions for College Savings
Which states offer tax breaks for 529 college-savings account contributions?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
April 9, 2004
Which states offer tax breaks for 529 college-savings account contributions? Does it still count if I'm moving money from an account in another state?
About half the states let you take an income-tax deduction for 529 contributions. For a full list go to Savingforcollege.com's 529 evaluator and bring up the list of state tax rules in the "compare by question" section. Of course, you need to pay taxes in the state where you've made the contribution in order to qualify for the deduction. For reviews of 529 programs in your state see our state-by-state profiles.
The deduction limits vary by state. Some, like New Mexico, let you deduct your entire contribution. Others, like New York, let you deduct up to $5,000 per year for individuals; $10,000 for married couples.
The rules for rollover contributions also vary. Some states let you take the full income-tax deduction, even if you're shifting the money from a 529 in another state. But others limit the deduction on rollovers. In Illinois, all contributions are tax-deductible except for earnings from a rollover; Colorado doesn't let you deduct any money rolled over from another state's plan. The rollover rules can change, so it's best to ask the state about the deductibility before you make the switch. See our state college savings plans map for links to each state's 529 Web site.
If you live in a state that offers an income-tax deduction, it's generally a good idea to invest at least enough money in that 529 plan to take advantage of the write-off. But there's no limit on the number of states where you can open up 529 accounts, so if another state's plan has lower fees and better investment choices, you can invest any additional money there. See the list of our favorite 529 plans for some ideas.
