Benefits of 529 Plans Vary Widely

[Ron Ablang]

I live in CA and perhaps the most interesting part of this article for
me is that 3 states offer "tax credits for a portion of 529-plan
contributions". Does anyone know what percentage that would be? And is
it available to those who don't live in those states?

--

DECEMBER 5, 2011

Saving for College
Benefits of 529 Plans Vary Widely
The state-tax savings for families depend very much on where they live

By ANNAMARIA ANDRIOTIS

For all the risks that come with investing in 529 college savings plans
in a period of market tumult, investors in most states have one
certainty: that they'll receive state tax benefits for their
contributions to their home state's plan. But those tax savings are much
richer in some states than in others, as these figures for one
hypothetical family show.
529 Plans and Taxes

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See a chart of the state-tax savings for a couple filling a joint 2011
return with $100,000 in taxable income and contributions of $2,500 each
to two children's in-state 529 savings plans.
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Investors make roughly a third of their contributions to the
state-sponsored 529 plans during the fourth quarter of each year, and
most of that money comes rushing in during December as families look
ahead to tax season, says Paul Curley, director of college-savings
research at Financial Research Corp. in Boston.

Most states offer a tax deduction. For one child, a married couple's
annual write-off is capped at levels ranging from $250 (in Maine) to
$26,000 (in Pennsylvania), says Joe Hurley, founder of
Savingforcollege.com, which tracks 529 plans. Four states—Colorado, New
Mexico, South Carolina and West Virginia—don't have annual deduction
limits, but cap total deductions over time for each child. The limit can
be as much as $318,000 (in South Carolina).

For parents saving for two children's college education, the annual
deduction caps in 10 states double. In Kansas, for example, it's $6,000
for one child or $12,000 for two.

Instead of deductions, three states—Indiana, Utah and Vermont—give tax
credits for a portion of 529-plan contributions.

Sixteen states don't offer any tax benefits. To be sure, a few are
states that don't have a personal income tax, such as Florida and Texas.
But several of those states, including California, Hawaii and Minnesota,
have high tax rates.

Beyond tax benefits, some states are offering free cash in their 529
plans. While most have income limits, some give money just for starting
a 529 plan. For example, Maine and Rhode Island offer $500 and $100,
respectively, for parents who start a 529 plan before their child's
first birthday.

One drawback: Because the tax benefits are typically limited to plans
sponsored by the taxpayer's state, that can stop people from choosing a
different 529 plan with better-performing investments, says Deborah Fox,
a San Diego-based financial planner and founder of Fox College Funding.
The exceptions are Arizona, Kansas, Maine, Pennsylvania and Missouri,
where residents can choose a 529 plan from any state while still
receiving their own state's deduction.

http://online.wsj.com/article/SB10001424052970204190504577040021646443162.html