New Minnesota Tax Credits & Deductions for 529 Plan Contributions
Submitted by Dorval & Chorne on July 25th, 2017
By Ellen A. Kvenild | Tuesday, July 25, 2017
Many of our clients are interested in saving and investing to help pay college costs for their children or grandchildren. We often suggest 529 college savings plans to help achieve these goals. For Minnesota residents, lawmakers recently passed new legislation with tax incentives to encourage college savings. Prior to 2011, some Minnesota residents received a matching grant from the State on 529 plan contributions if they were within the income limitations and if the state-specific 529 plan was used. The matching program was taken away in 2011 and there have been no incentivized programs until now.
The new legislation outlines two different programs for Minnesota tax payers: a tax deduction and a tax credit. You may only use one in any given tax filing year. The tax deduction program is available to all tax payers as it is not subject to income restrictions. You are able to access a $1500 tax deduction for single tax filers or $3000 deduction for married couples filing jointly which is claimed against Minnesota taxable income.
The other option is a tax credit equal to a maximum of 50% of the total contributions in to the account (minus any withdrawals taken) with a maximum credit of $500 annually per tax filing. The tax credit is subject to income limitations. For individual filers, the credit is phased out by two percent of your adjusted gross income (AGI) in excess of $75,000 with an income cap of $100,000 to receive credit. For married couples filing joint returns, the credit begins to phase out at $75,000 and is fully phased out for adjusted gross incomes over $160,000.
The new savings apply to your 2017 Minnesota state income tax filing and we encourage all clients using 529 plans to consult with their tax advisor or accountant on which program would be best suited for your situation.
These new incentive programs are applicable to any 529 plan used, not just the 529 plan sponsored by the state of Minnesota which opens up many more savings options for parents and grandparents. I am the classic procrastinator in setting up 529 plans for my own kids so these incentives will give me the push to generate the paperwork needed to set up the accounts! Please let us know if you have questions about these new programs and how they apply to your specific situation.
