Section 529 College Savings Plans have long been a great way to help your children or grandchildren save and pay for their education as they allow funds to grow tax-deferred and come out tax-free if used for qualified education expenses. And, starting with the 2023 tax year, some parents and grandparents who contribute to 529s will now qualify for an additional benefit.
The Maine legislature has reinstated and increased the state income tax deduction available for those who make 529 contributions, entitling qualifying Maine residents to a $1,000 deduction, per beneficiary. So, if you are a grandparent with four grandchildren and you contribute $1,000 or more to each of their 529 accounts this year, you may be eligible for a $4,000 deduction.
Contributions to any state-sponsored plan (not just the Maine plan) are eligible, but the deduction is only available to Maine residents with federal adjusted gross income of up to $100,000 if single or married and filing separately, or up to $200,000 if married filing jointly or if filing as a head of household. And, to claim the deduction for a given tax year, you must have made the contributions within that calendar year.
Beyond the tax benefits, Maine children benefit from a series of grants related to the state’s NextGen 529 plans. All babies born in Maine are eligible for the $500 Alfond grant, plus an additional $100 when they set up their account; and, beyond that, there are also a series of matching grants that incentivize regular contributions, including $100 when you make six automated payments in a row, and a matching contribution of up to $300 each year.
If you would like to discuss ways to support the future scholars in your life and whether 529 contributions make sense for your family, contact us any time.