The Ultimate Guide to 529 Plans
If you use a 529 Plan savings account, then you probably already know how useful it can be when saving for your child’s education. A 529 Plan does not only allow for ample contributions and growth; it also allows for tax-exempt withdrawals. However, you will have to make sure that these withdrawals are used for qualified education-related expenses if you want to take advantage of the federal tax benefits and avoid penalties. Moreover, you will need to know exactly how your state treats 529 withdrawals to determine if you will have to pay any taxes or penalties at the state level.
What Are 529 Plan Qualified Expenses?
Qualified 529 Plan expenses are the education-related costs you can pay for with tax-free distributions from your 529 Plan. The savings in a 529 Plan are tax-deferred, and qualified withdrawals are tax-free at the federal level. Alternatively, if you withdraw funds for a non-qualified expense, you could have to pay federal income tax on the amount withdrawn, plus a 10% tax penalty. Therefore, it’s important to know what kind of expenses qualify for tax-free withdrawals when you’re ready to distribute funds from your 529 Plan.
A 529 Plan is generally designed for secondary educated related expenses, such as a 2 or 4-year college and graduate school. However, you can still use up to $10,000 from your 529 Plan to pay for elementary, middle, or high school tuition in most states. In any case, when it comes to the costs of secondary education, you can count on 529 Plan qualified expenses to include all of the following:
- Tuition
- Room & board (not to exceed the actual amount paid or the estimated cost included in the school’s federal aid cost of attendance calculations)
- Required textbooks and school supplies
- Special needs equipment
- Computers and related equipment primarily used for school
- Up to $10,000 in student loans
How Do 529 Plan Qualified Expenses Vary by State?
The 529 Plan rules are determined at the federal level, but these plans are administered at the state level. Fortunately, participation in the federal program is high, with 49 states (Wyoming is the exception) offering at least one 529 Plan, and all participating states using the same 529 Plan qualified expenses outlined in the federal tax code. That said, each state has different rules for 529 Plans regarding state income tax deductions, state contributions, payer contribution limits, and penalties for distributions unrelated to qualified education expenses.
Two of the most important factors to consider are state contributions and plan limits. State contributions refer to the amount the state is willing to contribute to a student’s 529 Plan, while plan limits refer to the maximum funds you can have in a single 529 Plan account. Once an account reaches its limit, you will not be able to make further contributions. However, this does not mean that a 529 Plan will not continue to grow beyond its limit. In theory, a 529 Plan can grow exponentially; you just will not be able to make more contributions.
529 Plan Rules & Resources In All 50 States
Alabama 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $5,000 per individual ($10,000 filing jointly)
State Contribution: None
Alabama 529 Plan Limit: $475,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax plus 10% penalty fee
Additional Resources: CollegeCounts
Alaska 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $100,000 (subject to federal gift tax)
State Contribution: None
Alaska 529 Plan Limit: $475,000 per beneficiary
State Fee for Non-Qualified Withdrawals: None
Additional Resources: Alaska529
Arizona 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $2,000 per individual ($4,000 filing jointly)
State Contribution: None
Arizona 529 Plan Limit: $494,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: AZ529
Arkansas 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $5,000 per individual ($10,000 filing jointly)
State Contribution: None
Arkansas 529 Plan Limit: $366,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: GIFT529
California 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: No state deductions
State Contribution: Up to $200
California 529 Plan Limit: $529,000 per beneficiary
State Fee for Non-Qualified Withdrawals: 2.5% additional tax
Additional Resources: ScholarShare529
Colorado 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: Up to account maximum
State Contribution: Up to $2,000 per year for four years
Colorado 529 Plan Limit: $400,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: CollegeInvest
Connecticut 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $5,000 per individual ($10,000 filing jointly)
State Contribution: Up to $250
Connecticut 529 Plan Limit: $300,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax Additional Resources: CHET Program
Delaware 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: No state deductions
State Contribution: None
Delaware 529 Plan Limit: $350,000 per beneficiary
State Fee for Non-Qualified Withdrawals: None
Additional Resources: DE529
Florida 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: N/A (Florida does not have state income tax)
State Contribution: None
Florida 529 Plan Limit: $418,000 per beneficiary
State Fee for Non-Qualified Withdrawals: None
Additional Resources: Florida Prepaid Savings Plans
Georgia 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $4,000 per individual ($8,000 filing jointly)
State Contribution: None
Georgia 529 Plan Limit: $235,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: Path2College
Hawaii 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: No state deductions
State Contribution: None
Hawaii 529 Plan Limit: $305,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: HI529
Idaho 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $6,000 per individual ($12,000 filing jointly)
State Contribution: None
Idaho 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax Additional Resources: Idaho College Savings Program
Illinois 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $10,000 per individual ($20,000 filing jointly)
State Contribution: $50 per child
Illinois 529 Plan Limit: $450,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: BrightStart529
Indiana 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: 20% of contributions up to $1,000
State Contribution: None
Indiana 529 Plan Limit: $450,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: CollegeChoice529
Iowa 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $3,439 per individual ($6,878 filing jointly)
State Contribution: None
Iowa 529 Plan Limit: $420,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: Iowa 529 Plan
Kansas 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $3,000 per individual ($6,000 filing jointly)
State Contribution: Up to $600 (low-income households only)
Kansas 529 Plan Limit: $418,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: LearningQuest
Kentucky 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: No state deductions
State Contribution: None
Kentucky 529 Plan Limit: $350,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: KY Saves 529 Plan
Louisiana 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $2,400 per individual ($4,800 filing jointly)
State Contribution: 2%-14% of account owner contributions (based on household income)
Louisiana 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: StartSavingLA
Maine 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: No state deductions
State Contribution: $500 per child, plus up to $300 in matching contributions
Maine 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: NextGen
Maryland 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $2,500 per individual ($5,000 filing jointly)
State Contribution: Up to $500 (based on household income)
Maryland 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: Maryland529
Massachusetts 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $1,000 per individual ($2,000 filing jointly)
State Contribution: $50 per child
Massachusetts 529 Plan Limit: $400,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: MEFA
Michigan 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $5,000 per individual ($10,000 filing jointly)
State Contribution: None
Michigan 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: Michigan Education Savings Program
Minnesota 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $1,500 per individual ($3,000 filing jointly)
State Contribution: Up to $500 (based on household income)
Minnesota 529 Plan Limit: $425,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: MN Saves
Mississippi 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $10,000 per individual ($20,000 filing jointly)
State Contribution: None
Mississippi 529 Plan Limit: $235,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: College Savings Mississippi
Missouri 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $8,000 per individual ($16,000 filing jointly)
State Contribution: None
Missouri 529 Plan Limit: $325,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax plus 10% of withdrawal earnings
Additional Resources: MOST 529 Plan
Montana 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $3,000 per individual ($6,000 filing jointly)
State Contribution: None
Montana 529 Plan Limit: $396,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: Achieve Montana
Nebraska 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $10,000
State Contribution: Varies based on private funding, with up to $1,000 for low-income households
Nebraska 529 Plan Limit: $400,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: NEST529
Nevada 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: N/A (no state income tax)
State Contribution: $50 per child, with up to $1,500 for low-income households
Nevada 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: None
Additional Resources: NVIGATE
New Hampshire 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: N/A (no state income tax)
State Contribution: None
New Hampshire 529 Plan Limit: $522,000 per beneficiary
State Fee for Non-Qualified Withdrawals: None
Additional Resources: 529 College Savings Program
New Jersey 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: Up to account maximum
State Contribution: Up to $1,500 per beneficiary
New Jersey 529 Plan Limit: $305,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: NJBest
New Mexico 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: Up to account maximum
State Contribution: None
New Mexico 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: The Education Plan
New York 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $5,000 per individual ($10,000 filing jointly)
State Contribution: None
New York 529 Plan Limit: $520,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: NY’s 529
North Carolina 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: No state deductions
State Contribution: None
North Carolina 529 Plan Limit: $420,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: College Foundation of North Carolina
North Dakota 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $5,000 per individual ($10,000 filing jointly)
State Contribution: Up to $200 match (or $300 for low-income households) in the first year that the account is opened
North Dakota 529 Plan Limit: $269,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: College SAVE
Ohio 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $4,000
State Contribution: None
Ohio 529 Plan Limit: $482,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: Ohio’s 529
Oklahoma 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $10,000 per individual ($20,000 filing jointly)
State Contribution: None
Oklahoma 529 Plan Limit: $300,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax plus up to 5% of the withdrawal amount
Additional Resources: OK4Saving
Oregon 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $150 per individual ($300 filing jointly)
State Contribution: $25 per child
Oregon 529 Plan Limit: $400,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: Oregon College Savings Plan
Pennsylvania 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $15,000 per individual ($30,000 filing jointly)
State Contribution: $100 per child
Pennsylvania 529 Plan Limit: $511,758 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: PA529
Rhode Island 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $500 per individual ($1,000 filing jointly)
State Contribution: $100 per child
Rhode Island 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: CollegeBoundBaby
South Carolina 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: Up to account maximum
State Contribution: None
South Carolina 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: FutureScholar
South Dakota 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: N/A (no state income tax)
State Contribution: None
South Dakota 529 Plan Limit: $350,000 per beneficiary
State Fee for Non-Qualified Withdrawals: None
Additional Resources: CollegeAccess529
Tennessee 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: N/A (no state income tax)
State Contribution: 4:1 matching program for low-income households
Tennessee 529 Plan Limit: $350,000 per beneficiary
State Fee for Non-Qualified Withdrawals: None
Additional Resources: TNStars
Texas 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: N/A (no state income tax)
State Contribution: None
Texas 529 Plan Limit: $500,000 per beneficiary
State Fee for Withdrawals Beyond 529 Qualified Expenses: None
Additional Resources: Texas College Savings Plan
Utah 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $2,040 per individual ($4,080 filing jointly)
State Contribution: None
Utah 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: My529
Vermont 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $4,000
State Contribution: None
Vermont 529 Plan Limit: $352,800 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: VT529
Virginia 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $2,500 per individual ($5,000 filing jointly)
State Contribution: None
Virginia 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: Virginia 529
Washington 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: Up to account maximum
State Contribution: None
Washington 529 Plan Limit: $500,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: WA529
West Virginia 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: Up to account maximum
State Contribution: $100 per child
West Virginia 529 Plan Limit: $400,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: Smart529
Wisconsin 529 Plan
Maximum Annual Contribution For State Income Tax Deductions: $1,670 per individual ($3,340 filing jointly)
State Contribution: $100 per child
Wisconsin 529 Plan Limit: $505,000 per beneficiary
State Fee for Non-Qualified Withdrawals: State income tax
Additional Resources: Edvest
Learn More About 529 Plans With Merit
Do you want to learn more about the benefits of 529 plans? If you’d like more personalized financial advice or assistance navigating the 529 qualified expenses in your state, be sure to contact Merit Financial Advisors today!