529 Tax Deductions: The Essentials
With the start of the new year, tax season looms, and tax deductions help ease your tax burden. Starting a 529 college savings plan is a smart investment because it provides an incentive to save for your child’s education, with the added benefit of tax deductions. We’ll break down what you need to know about 529 plans and tax advantages at the federal and state level.
529 Federal Tax Deductions
There is currently no federal tax deduction for contributions to a 529 plan. However, earnings on your 529 account are not subject to federal taxes as long as they are used for qualified education expenses, including tuition, room and board, textbooks, computers and software, lab fees and more.
If funds are invested in the 529 account early and have time to grow, the tax savings on earnings can be significant. If you invest $10,000 in a 529 account, for example, and it grows to $20,000 over the course of ten years, you will not pay federal taxes on the $10,000 in growth when you remove the funds from the account, as long as they are used for qualified expenses.
529 State Tax Deductions
There are over 30 states that offer a state tax deduction on contributions to a 529 plan. In most cases you must be a resident of that state and contribute to the state’s official 529 plan to qualify for the tax deduction. There are nine states that offer tax parity. This means that they will allow you to deduct contributions to any state’s 529 plan from your state income taxes. Tax parity states include:
- Arizona
- Arkansas
- Kansas
- Maine
- Minnesota
- Missouri
- Montana
- Ohio
- Pennsylvania
Additionally, there are 13 states that do not offer a state tax deduction on contributions to a 529 plan. These states include:
- Alaska
- California
- Florida
- Hawaii
- Kentucky
- Nevada
- New Hampshire
- North Carolina
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
You can see a full map of each state’s tax benefits and deductions here.
Most states have a cap on the total contributions you can deduct from your state taxes. In New York, for example, residents can deduct up to $5,000 in contributions to the New York state 529 plan.
Just four states allow you to deduct 100 percent of contributions to a 529 plan from your state taxes. New Mexico is one of these states. If you are a New Mexico resident, you can deduct 100 percent of your contributions to a 529 account with The Education Plan when the funds are used for qualified expenses. This offers a great tax incentive for New Mexico residents to save for higher education through the state’s 529 plan.
Who Can Take a 529 Tax Deduction?
You don’t have to be a child’s parent to benefit from the 529 tax deductions that are available.
Grandparents, aunts, uncles, and friends can all deduct contributions to a 529 plan from their state taxes in accordance with their state’s rules and regulations. If you are a New Mexico resident, for example, you can deduct 100 percent of contributions to your grandchild’s 529 account with The Education Plan from your state income taxes even if you are not the account holder.
The Bottom Line
A 529 college savings account provides attractive tax deductions for families seeking to save for future education. Select the plan that is best for your family, one with optimal tax deductions, maximum growth potential, and one that provides you with the motivation to save today so your children can succeed tomorrow.
Frequently Asked Questions
A 529 plan is a tax-advantaged investment account that is designed to grow savings for future education expenses for a specified beneficiary. 529 plans offer unique benefits and features that make them an appealing strategy for education related saving.
A 529 plan can be used for “qualified educational expenses.” For federal tax purposes, qualified educational expenses include:
- Tuition and fees at accredited higher education institutions
- Books
- Supplies and equipment
- Room and board for beneficiaries attending on at least a half-time basis.
- Computer technology, equipment, and internet access
- Up to $10,000 a year for K-12 tuition and expenses (Limit increase to $20,000 in 2026)
- Expenses for educational special needs services
- Transfers to an ABLE account for the beneficiary (transfer subject to annual limit)
- Apprenticeship expenses
- Up to $10,000 for student loan repayment
- Credentialing expenses and certification programs
- Roth IRA rollover for the beneficiary
If you're not sure if an expense is considered "qualified," we recommend consulting with a tax professional or advisor. Unqualified expenses will be treated like ordinary income: state and federal taxes will apply, with a 10% federal penalty for withdrawals from your 529 plan used to pay for them.
New Mexico residents can deduct contributions to The Education Plan from their state taxable income each year. This includes contributions made to an account that you are not the account owner of.
You cannot deduct contributions from federal income taxes.
Any person at least 18 years old with a valid Social Security Number (SSN) or Tax Identification Number (TIN) can open a 529 account. The account holder chooses the investment options, designates a beneficiary, and requests the distribution of funds.
The cost of college continues to rise, including tuition, housing, food and supplies, so it’s important to begin saving as soon as possible. You can learn more about how much a typical college education costs on our Cost of College page. It’s never too early or too late to start.
The Education Plan offers a variety of investment options to fit you and your family’s needs, risk tolerance and goals. You can see all of the available investment portfolios on the investments page.
Yes, you can use up to $20,000* a year to cover tuition and expenses for K-12 education.
Qualified K-12 expenses include:
- Tuition (public, private, and religious)
- Curriculum materials, books (including digital/online) and instructional materials
- Tutoring and instructional classes**
- Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to college or university admission
- Dual enrollment program fees
Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies
*Starting in tax year 2026. The annual limit is $10,000 in tax year 2025 and permitted for tuition only.
**Tuition for tutoring or educational classes outside of the home, including at a tutoring facility, but only if the tutor or instructor is not related to the student and—
(i) is licensed as a teacher in any State,
(ii) has taught at an eligible educational institution,
or (iii) is a subject matter expert in the relevant subject.
You can open an account with The Education Plan online or by mailing in the enrollment form. In order to open an account, you will need the following information:
- Your social security number or TIN
- Your address
- Your bank account information (in order to fund the account)
- The beneficiary’s social security number or TIN
- The beneficiary’s birthday
-The beneficiary’s address
