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College Savings: Now with more tax benefits!
The Minnesota College Savings Plan has always offered savers tax-free growth on any account earnings. Now, there are additional tax benefits available for Minnesota families.
Earlier in 2017, new tax benefits were approved by the state legislature for Minnesota taxpayers who save for college through 529 plans. Effective for tax years beginning after December 31, 2016, a taxpayer may be eligible for either a deduction from federal taxable income for Minnesota income tax purposes, or a tax credit on contributions to a 529 account during a taxable year.
Depending on your circumstances, you could deduct up to $3,000 or claim a tax credit of up to $500.
How it works
Net contributions by a taxpayer are deductible for Minnesota income tax purposes each year. For example, if you contribute $1,000 to your Minnesota College Savings Plan in a tax year, you can reduce your state taxable income by $1,000. The maximum allowed deduction is $3,000 for joint income tax return filers, and $1,500 for all other filers. This tax benefit is for people who are not choosing the $500 tax credit.
If you don’t claim the deduction from federal taxable income for Minnesota income tax purposes, you may be eligible for a non-refundable tax credit. The credit must be equal to 50% of the contributions to your account made during the tax year, less the amount of any withdrawals. The maximum credit amount is $500, subject to phase-out based on certain federal adjusted gross income thresholds.
One thing to remember: incoming rollovers from another 529 account are not eligible for the tax deduction or credit.
You can find out more about what the new tax benefits mean for your family by talking to your financial advisor, or visiting the detailed tax advantages page.
To learn more about the Minnesota College Savings Plan, its investment objectives, tax benefits, risks and costs please see the Disclosure Booklet at mnsaves.org. Read it carefully. Investments in the Plan are neither insured nor guaranteed and there is a risk of investment loss. If the funds aren’t used for qualified higher education expenses, a 10% penalty tax on earnings (as well as federal and state income taxes) may apply. Check with your home state to learn if it offers tax or other benefits for investing in its own 529 plan. Taxpayers should seek advice from an independent tax advisor based on their own particular circumstances.
TIAA-CREF Tuition Financing Inc., Plan Manager.