529 Plan Contribution Deadlines
Many states have year-end deadlines for making 529 college savings plan contributions.
If you are saving for college, it’s important to have information about making 529 contributions that can maximize available state tax breaks. So, here are a few reminders to help you take advantage of tax benefits associated with your 529 college savings plan—beginning with a quick overview of how 529 plans work.
How Do 529 Plans Work?
As you may know, a 529 plan is a state-sponsored, tax-advantaged college savings investment plan. When you enroll in a 529 plan, the money you invest grows on a tax deferred basis. When you withdraw from the 529 plan and use the money to pay for qualified education expenses, those withdrawals are tax free.
529 plans are designed to encourage saving for college and typically cover qualified education-related expenses like tuition, fees, books, computers, and other supplies. Certain room and board expenses are usually considered to be “qualified expenses.” But sometimes, whether 529 college savings can be used to pay for the cost of room and board will depend on whether those costs exceed certain amounts.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Additionally, 529 plan funds can generally be used to pay tuition for professional and trade schools and up to $10,000 per student, per year, can be used to pay for K-12 private school tuition. In any case, keep in mind that each 529 plans may have its own specific rules regarding what particular expenses are considered to be "qualified expenses."
Do You Get a Tax Break for Contributing to a 529 Plan?
A 529 plan doesn’t offer a federal income tax benefit because 529 plans are sponsored by states. As a result, the contributions to your 529 plan are not tax deductible on your federal tax return. But some states offer a state tax credit or state tax deduction for 529 college savings plan contributions that are made in your home state.
And, as previously mentioned, your 529 plan funds grow tax free and withdrawals of 529 college savings account funds that are spent on qualified expenses, are also tax free.
But remember: if you withdraw 529 plan funds and don’t use that money for qualified education-related expenses, you could face a 10% federal income tax penalty.
How Late Can I Contribute to a 529 Plan?
In most states, you should contribute to your 529 college savings plan by the end of the year—i.e., December 31—to maximize any state tax breaks associated with those contributions.
But in other states, you can contribute until that state’s tax filing deadline next year. (The specific deadlines vary by state). For example, some of the states that don’t have a year-end contribution deadline for maximizing 529 plan contribution benefits are Iowa, Georgia, Mississippi, Oklahoma, South Carolina, and Wisconsin.
In all cases—and because you are not limited to choosing a 529 plan from your home state—it’s important to know which 529 plan contribution deadlines apply to you. Check your 529 plan rules or talk with a professional advisor who may be able to help you maximize your state tax benefits.
How Much Can I Contribute to a College 529 Plan in 2023?
529 college savings plans do not have set individual annual contribution limits like 401(k) plans do. Instead, annual, and aggregate, contribution limits for 529 plans vary by state.
It’s also important to keep in mind that contributions to your 529 plan are treated as gifts for federal income tax purposes. In 2023, under the gift tax exclusion rules, you can contribute up to $17,000 tax free per donor. However, gifts over $17,000 must be reported on a federal gift tax return. That doesn’t necessarily mean that you will be subject to tax on your gift though, because the lifetime federal gift tax exemption amount is quite high.
College 529 Savings Plans: What You Need to Know
What if My Child Doesn’t Go to College?
From a tax perspective, if your student doesn’t attend college and you withdraw 529 college savings plan funds for other than qualified education-related expenses, then the money you take out of the 529 plan would be subject to the 10% federal income tax penalty.
Additionally, the 529 plan funds that you withdraw for non-education-related expenses, would be considered taxable income—which could impact your federal and state taxes.
529 Plans: What You Can Do
Because so much about 529 plans varies by plan and by state, you should familiarize yourself with the specific rules governing your plan.
Also, consult a qualified financial planner or other trusted advisor if you are uncertain about those rules or about how to get the most tax benefit from your 529 college savings plan.
With more than 20 years of experience as a corporate attorney and business journalist, Kelley R. Taylor has contributed to numerous national print and digital magazines on key issues spanning education, law, health, finance, and tax. Over the years, Kelley has extensively covered major tax developments and changes including the TCJA, pandemic-era changes in ARPA, the SECURE 2.0 Act, and the numerous clean energy tax credits in the Inflation Reduction Act. Kelley particularly enjoys translating complex information in ways that help empower people in their daily lives and work.
-
-
IRS is Targeting Promoters of Abusive Tax Schemes Kiplinger Tax Letter
Tax Letter Tax schemes range from basic tax dodges to highly complex transactions.
By Joy Taylor • Published
-
How to Save on Prescription Medication
How you can save money on prescription medication amidst rising prices.
By Erin Bendig • Published
-
States With Low and No Capital Gains Tax
Capital Gains Tax Low-tax states, including states with no capital gains tax, are selling points for many people lately.
By Kelley R. Taylor • Published
-
94-Year-Old Prevails in Home Equity Supreme Court Case
The U.S. Supreme Court ruled that "home equity theft" violates the Constitution.
By Kelley R. Taylor • Published
-
Are Student Loans Being Forgiven or Not?
Republicans are trying to repeal President Biden’s student loan forgiveness plan, but does it even matter?
By Katelyn Washington • Published
-
Republican Tax Package Expected After Debt Ceiling Deal
With a debt ceiling agreement in place, Republicans could soon propose a bill to address some key tax changes.
By Kelley R. Taylor • Last updated
-
Minnesota Rebate Checks and Child Tax Credit in 2023
Minnesota rebate checks and a new state child tax credit are coming in 2023. Here's everything you should know.
By Katelyn Washington • Published
-
Record-High HSA Limit Coming for 2024
The IRS says health savings account contribution amounts are going way up — almost 7% more — for 2024.
By Kelley R. Taylor • Published
-
Texas Imposes New Tax on Electric Vehicles
Texans who own or buy electric vehicles will soon see their registration costs jump nearly 800%.
By Katelyn Washington • Published
-
States Where You’ll Pay Less Income Tax in 2023
Many states have lowered personal income tax rates for this year. Do you live in one?
By Kelley R. Taylor • Published