Tax-Advantaged 529 Plans

One of the most popular tax-advantaged plans available is a 529 savings plan designed to encourage saving for future college costs for a designated beneficiary, such as a child or grandchild. This type of plan is available to all taxpayers regardless of their income. Below are a few important reminders about the benefits these plans offer:

  • Contributions to a 529 plan are not currently deductible on your federal tax return, however the earnings from the plan are tax-deferred for both federal and state taxes.
  • New York State taxpayers can deduct up to $5,000 ($10,000 if married filing jointly) in contributions to a New York State 529 plan on their state individual income tax return each year.
  • Only contributions made by the account owner, or if filing jointly, by the account owner’s spouse, are tax deductible.
  • To claim a deduction on your 2023 New York State individual tax return, contributions to a New York State 529 plan must be made on or before December 31st.
  • Distributions from a 529 plan are tax-free if used to pay for qualified college education expenses, including: tuition, certain room and board expenses, books and supplies. Distributions up to $10,000 per designated beneficiary may be used for private K-12 tuition. A life-time of $10,000 per beneficiary can be used to repay student loans

The account owner retains control of the funds (not the beneficiary), even after the beneficiary reaches legal age. The account owner can change beneficiaries at any time and for any reason. Age and income restrictions do not apply to the account owner or beneficiary unlike other education plans.

  • A taxpayer is not limited to just the plans offered by the state in which they reside. You can change your choice of plan every 12 months and rollover plan funds to a new plan that provides more investment options and higher contribution ceilings. However, contributions to other state plans are not considered a deduction for New York State income tax purposes.
  • Beginning in 2024, beneficiaries of 529 college savings accounts are permitted to make up to a $35,000 direct trustee-to-trustee rollover from a 529 account to a Roth IRA without tax or penalty. The 529 account must have been open for at least 15 years and the rollover is limited to the amount contributed and its earnings more than five years earlier. Rollovers are subject to the IRA annual contribution limits, which is $6,500 in 2024, with an extra $1,000 catch-up allowance for taxpayers over 50.

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