We are always trying to provide the best tax guidance to our clients and this is one of our favorites.
529 plans are designed to encourage savings for the designated beneficiary to be used on qualified higher, and sometimes secondary, education expenses. Most states offer these plans and the best part is some states provide tax benefits based on the contributions made to the plan during the year.
In Missouri, you receive a dollar for dollar subtraction to income on the contributions made to a 529 plan. There is a cap on that deduction though, which is $8,000 for single filers and $16,000 for married filed jointly filers.
In Illinois, you also receive a dollar for dollar subtraction to income on the contributions made to a 529 plan. However, in Illinois the maximum deduction allowed is raised to $10,000 for those who file as single and $20,000 for those who file as jointly married.
Only $15,000 per parent (or grandparent) can be contributed during a tax year in order to not be considered a gift in the eyes of the IRS. Anything above $15,000 per person contributed would be a gift and a gift tax return would need to be filed.
Please visit this website for specific details on each state’s 529 plan and the deductions allowed, if any.
Regarding taking distributions from these 529 plans, funds can be taken out tax-free if done following the guidelines. Funds taken out of the plan have to be used to pay for qualified expenses, not just all possible expenses. Despite the name, funds can also be used to pay for elementary, middle and high school tuition, but with a limit of $10,000.
If you have any questions or want additional information, please contact Sami Crigler at firstname.lastname@example.org or 314-576-1350.