It is almost back to college time, so let’s discuss college funding and how to save money on your taxes. Section 529 plans are normally the preferred way in which parents and/or grandparents should save for a child’s college education funding. Matt Ridenour, one of our Client Wealth Managers, posted a great blog on 529 basics back in June.
Today I’d like to focus on some of the unique tax benefits South Carolina donors might have. Many states do not give donors of 529 plans a state income tax deduction, and those that do often limit the deduction to $2000. This is where South Carolina residents have an advantage. The SC 529 plan effectively has no limit on how much you can deduct from your SC state income. (There are annual gift limits and aggregate contribution limits to consider.)
Here is an example: Let’s assume Mr. and Mrs. John Doe have SC taxable income of $80,000 in 2014. If they contribute $10,000 in a SC 529 plan, they should be able to deduct the entire amount from their SC state taxable income. At a 7% state income tax rate this means they saved $700 in state taxes! Plus they have until April 15, 2015 to make a contribution for 2014.
There are other good reasons to use these plans, but like any investment there are risks. Section 529 plans and their taxation can be complex, be sure to get appropriate financial and tax advice before investing.