Tax Deduction Rules for 529 Plans: What Families Need to Know

Written by: Kristyn Pilgrim
Updated: 6/04/20

April is generally tax season (although COVID-19 has pushed back the 2020 filing deadline to July). While filing and paying taxes can be painful, governments offer several deductions that can reduce a family’s tax burden and increase any possible refund. Families who invest in 529 plans may be eligible for tax deductions. This article will explain the tax deduction rules for 529 plans for current and future investors.

What Is a 529 Plan? 

A 529 plan – named after Section 529 of the Internal Revenue Code – is a tuition account established and operated by a state. The plan allows a family to set money aside for a student’s education. All 50 states and Washington, D.C., offer 529 plans. 

There are two types of 529 plans. Both, as explained in more detail later, offer significant tax advantages.

With a prepaid tuition plan, the family identifies a qualifying institution of higher education. (While the rules vary from state to state, usually, public universities qualify.) The family’s contributions go toward the school’s tuition and fees. Prepaid plans usually do not allow families to prepay room and board. The primary benefit of prepaid tuition plans is that they are guaranteed to increase in value at the same rate as college tuition, giving families peace of mind.

An education savings plan (or college savings plan) is a type of investment account where families can save for college. However, unlike a prepaid tuition plan, funds from an education savings plan can be used for tuition and room and board. 

Tax Deductions vs. Penalties 

The greatest benefit of 529 plans is their tax advantages. But to understand these benefits, you must understand deductions and penalties. 

Tax penalties punish taxpayers for taking certain actions. Generally, they exist to discourage people from making certain financial decisions. For example, there is a tax penalty for withdrawing funds from retirement accounts before reaching a certain age. 

On the other hand, tax deductions reward taxpayers under certain circumstances. Tax deductions reduce a filer’s overall tax liability to reward them for responsible financial choices. Two examples of deductions are income reductions for families with dependents and those paying student loan interest. 

Federal and State Tax Deduction Rules for 529 Plans 


The federal tax deduction rules for 529 plans are straightforward. Unfortunately, the federal government does not allow families to deduct contributions to a 529 plan. There is no indication that this rule will change anytime soon.

Families should note that while the federal government does not reward 529 contributions, it does penalize early withdrawals. Families can make 529 withdrawals in any amount without penalty as long as the withdrawal is used for qualified educational expenses. (Qualified educational expenses include funds spent to cover costs at colleges, student loan repayments, or K-12 schools.) However, families will pay a 10% penalty for any withdrawals made for noneducational purposes. 

While federal tax rules do not allow families to deduct 529 contributions, states have their own policies. Remember that each 529 plan is owned and operated by a state government. Therefore, many states allow families to deduct 529 contributions on their state taxes.

State-by-State Tax Deduction Rules for 529 Plans  

While most states’ tax deduction rules allow families to subtract 529 contributions from their gross income, the rules vary from state to state. The chart below provides an overview of the rules in each state. It lists the rules for state residents who buy a plan sponsored by the state where they reside. (The rules may be different for those who buy plans in other states or who roll over plans from one state to another.) 

Please note that some states offer tax deductions, while some offer tax credits. Deductions reduce the amount of income taxed, while credits reduce a person’s tax liability. 

Finally, the rules below assume that the parents are making the contributions. Some states restrict tax benefits to parents, while others allow any contributor (such as grandparents, aunts, or uncles) to take advantage of the tax benefits. 

Note: This information is not legal or accounting advice. Please consult an attorney or accountant for professional guidance on your particular tax situation.

State 529 Deduction Rules Website
Alabama Alabama allows deductions of up to $5,000 for single filers and up to $10,000 for married couples filing jointly. collegecounts529.com
Alaska Alaska has no personal income tax, so deductions are not applicable. alaska529plan.com/home.html
Arizona Arizona permits tax deductions of up to $2,000 for individual tax filers and up to $4,000 for married couples filing jointly. az529.gov
Arkansas Arkansas allows deductions of up to $5,000 for single filers and up to $10,000 for married couples. arkansas529.org/home.html
California California does not allow families to deduct their contributions to qualifying 529 plans. scholarshare529.com
Colorado Colorado allows families to deduct 100% of their contributions to Colorado’s 529 plan. collegeinvest.org
Connecticut Connecticut allows single filers to deduct up to $5,000 and joint filers to deduct up to $10,000 for contributions to the state’s plan.  aboutchet.com
Delaware Delaware’s tax code does not allow families to deduct 529 contributions.  treasurer.delaware.gov/education-savings-plan
Washington, D.C. Washington, D.C., permits married couples to deduct up to $8,000 while permitting individuals to deduct $4,000.   dccollegesavings.com/home.html
Florida Florida does not have a state income tax, so there is no need for a deduction. myfloridaprepaid.com/savings-plan
Georgia Georgia allows deductions of up to $4,000 for joint filers and up to $2,000 for individuals. path2college529.com
Hawaii At this time, Hawaii does not grant deductions for 529 contributions.  hi529.com
Idaho Idaho lets joint filers deduct up to $12,000, while individuals can deduct up to $6,000. idsaves.org/home.html
Illinois Illinois permits deductions of up to $20,000 for joint returns and $10,000 for individual filings. brightstart.com
Indiana Indiana provides a maximum tax credit of $1,000 per year for all filers.  collegechoicedirect.com/home.html
Iowa In Iowa, each taxpayer can receive a deduction of up to $3,387 for each beneficiary.  collegesavingsiowa.com/home.html
Kansas In Kansas, individual taxpayers can get a deduction of up to $3,000, while married filers can get a $6,000 deduction. learningquest.com/home.html
Kentucky Kentucky does not provide any tax benefits for 529 contributions.  kysaves.com/home.html
Louisiana Louisiana allows individual filers to deduct $2,400 from their income and married filers to deduct $4,800 each year.  startsaving.la.gov/
Maine Maine does not have a deduction for 529 contributions.  nextgenforme.com
Maryland Maryland allows contributors to deduct $2,500 per beneficiary per year. maryland529.com
Massachusetts In Massachusetts, single filers can deduct up to $1,000 of 529 contributions, while married filers can deduct up to $2,000. mefa.org
Michigan Michigan permits single filers to deduct up to $5,000 per year and married filers to deduct $10,000 each year.  misaves.com
Minnesota In Minnesota, taxpayers can deduct up to $1,500 (individual filers) or $3,000 (married joint filers). mnsaves.org
Mississippi In Mississippi, individual tax filers can deduct up to $10,000, and joint filers can deduct up to $20,000. treasury.ms.gov
Missouri Missouri families can take advantage of deductions of up to $8,000 per year (individual) or $16,000 (married, filing jointly). missourimost.org
Montana Montana allows deductions of up to $3,000 for individuals and up to $6,000 for couples filing jointly.  achievemontana.com
Nebraska In Nebraska, contributions to a 529 plan are deductible up to $5,000 for single filers and $10,000 for married filers. nest529direct.com
Nevada Because Nevada does not have a personal income tax, there is no need for deductions. nv529.org
New Hampshire New Hampshire has no personal income tax, so the state provides no deductions.  fidelity.com/529-plans/new-hampshire
New Jersey New Jersey does not provide any tax benefits for 529 contributions.  njbest.com
New Mexico In New Mexico, families can deduct 100% of their contributions to New Mexico’s 529 plan on their state taxes. theeducationplan.com
New York New York families can reduce their tax liability by $5,000 (individual filers) or $10,000 (married joint filers) when they contribute to a 529 plan.  nysaves.org
North Carolina North Carolina does not allow deductions for 529 contributions.  nc529.org
North Dakota In North Dakota, single filers can deduct up to $5,000, and joint filers can deduct up to $10,000 each year. collegesave4u.com/home.html
Ohio Ohio residents can deduct up to $4,000 per beneficiary per year on their state taxes.  collegeadvantage.com
Oklahoma Oklahoma allows individuals to deduct up to $10,000 per year and joint filers to deduct up to $20,000.  ok4saving.org
Oregon Oregon gives a tax credit for 529 contributions. The credit is up to $300 for joint filers and up to $150 for individuals.   oregoncollegesavings.com
Pennsylvania Pennsylvania allows deductions of up to $15,000 per beneficiary per year for single filers. Married couples can deduct up to $30,000 per beneficiary per year, as long as each spouse earns at least $15,000 of taxable income that year.  pa529.com
Rhode Island In Rhode Island, single filers can deduct up to $500, and joint filers can deduct up to $1000. collegeboundsaver.com
South Carolina In South Carolina, families can deduct 100% of their 529 contributions.  futurescholar.com
South Dakota South Dakota has no individual income tax, so there are no deductions.  collegeaccess529.com
Tennessee Tennessee does not impose an individual income tax, so there are no deductions.  tnstars.com
Texas Texas has no individual income tax, so it does not have deduction rules. texascollegesavings.com/
Utah Utah provides a tax credit of $98 for individuals and $196 for couples.  my529.org
Vermont Vermont residents can earn a maximum tax credit of $250 (single filers) or $500 (joint filers) when they contribute to Vermont’s 529 plan. vheip.org
Virginia Virginia taxpayers can deduct 529  contributions up to $4,000 per account per year. virginia529.com
Washington Washington has no personal income tax, so there are no deductions.  wastate529.wa.gov
West Virginia West Virginia allows families to deduct 100% of their 529 contributions on their state taxes. smart529.com/home.html
Wisconsin In Wisconsin, individual filers can deduct $1,640 from their taxes, while joint filers can deduct $3,280. 529.wi.gov
Wyoming Wyoming no longer operates its own 529 plan, but Wyoming residents can participate in Colorado’s program. At any rate, because Wyoming has no personal income tax, there are no deductions.    See Colorado