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Tax Benefits Of 529 Plan In Colorado

How Much Does The Colorado 529 Plan Cost

New Tax Law Update: 529 Plan Expansion

Each investment portfolio in the CollegeInvest plan charges a total annual asset-based fee of 0.32%, which is factored out of the total assets in each portfolio. So your account bears a pro-rata share depending on which option you invest in. However, this fee is very low compared with those found in other states 529 plans. The fact that the fee is a flat 0.32% across the plans investment menu is also quite rare, as portfolio fees in other plans can vary widely.

In addition, the plan charges an annual account maintenance fee of $20. However, you can waive this fee if you meet one of the following standards:

  • You are, or your beneficiary is, a Colorado resident.
  • Your account balance is at least $10,000.
  • You opt-in for electronic delivery of all plan documents.

Tax Breaks And Other Benefits

In any 529 plan, the earnings from your investments are tax-free, as long as you use the money for qualified education expenses. However, many states offer additional tax breaks if you invest in their plans, commonly in the form of state income tax deductions or credits. You must pay income tax in that state to benefit from perks like these.

A handful of states, including Arizona and Pennsylvania, provide state tax incentives when you contribute to a 529 plan in any state. In states where there is no income tax, such as Florida and Texas, you wont find tax incentives for contributing to a 529 plan.

States may also offer other perks for choosing their plan. For example, Colorado and Kansas offer matching grants, where the state will match your contributions up to a maximum limit. Other states, such as Kentucky, will exclude your 529 plan when considering your child for financial aidmeaning you could qualify for more money to help pay for college.

New York Tax Deductions

Rollovers from a New York 529 into another states 529 plan are subject to recapture if deductions were previously taken. Withdrawals used to pay for k-12 tuition, apprenticeship programs, or student loans may be subject to recapture as well.

  • $5,000 deduction for single filers.
  • $10,000 deduction for couples filing jointly.
  • The account owner may also contribute up to $75,000 in a single year without facing gift tax consequences so long as no contributions are made in the succeeding 4 years.
  • For joint filers contributing 5 years worth of payment in 1 year, the deductible is $150,000.
  • New Yorks maximum account balance for 529 plans is $520,000.

For more information on New York 529 plans,

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Collegeinvest Smart Choice College Savings Plan

Colorados CollegeInvest Smart Choice 529 is a conservative investment option for saving for college.

Type: Direct this Colorado 529 plan can be purchased directly.

Fund Family: FirstBank

Minimums: There is no minimum contribution.

Maximum Contributions: Currently, you can contribute to your Colorado 529 plan until your account balance per beneficiary reaches $280,000. Of course, your total amount in the plan can be higher as your investments group. 529 plans typically increase the contribution limit over time, so you may be able to contribute more.

Tax Benefits: Every dollar contributed to the plan can be deducted from your taxable income up to $350,000 in a year. You also get federal income tax benefits as you do not pay income tax on your earnings. Out-of-state participants still get the federal tax benefits.

Other Benefits: For Colorado residents, a matching grant applies. Eligible account holders can receive a $1 for $1 grant up to $500, for up to 5 consecutive years.

Residency: The CollegeInvest Stable Value Plus College Savings Plan is open to all United States residents, not just those in Colorado.

You can learn more about the this 529 plan at the official web site.

Plans Vs Other Savings Accounts

529 Tax Guide

Colorado residents trying to decide whether they should use a Colorado 529 plan or other savings vehicles need to account for the potential savings of a state income tax deduction. While the deduction is attractive, it may not offset the benefits of using other, nondeductible accounts, such as a Coverdell Education Savings Account or Uniform Transfers to Minors or Uniform Gifts to Minors custodial account. Talk to your financial advisor or a similar professional about which plan is likely to give you the greatest benefit.

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Scholars Choice College Savings Program

This plan is sold through a financial advisor and offers several options: The age-based and years-to-enrollment options automatically change the mix of investments to become more conservative as the beneficiary gets closer to college age. You can also select an account allocation according to risk, from all equities to all cash reserves. And, finally, you can choose from five fund categories: U.S. aggressive equity, U.S. core equity, U.S. small-cap equity, international equity, and global fixed income. All assets in this plan are invested in funds managed by Legg Mason Global Asset Management.

Rhode Island Tax Deductions

An account owner can take a 5 year deductible for one large lump sum payment of $75,000 or $150,000 if filed jointly. Money rolled over into another education savings account out of state is subject to recapture if tax deductions have been taken in Rhode Island.

  • $500 deduction for single filers.
  • $1,000 deduction for couples filing jointly.
  • Excess contributions that would result in more deductions can be carried over to the next year.
  • Rhode Islands maximum account balance for 529 plans is $500,000.

For more information on Rhode Island 529 plans,

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Are 529 Contributions Tax Deductible

Never are 529 contributions tax deductible on the federal level. However, some states may consider 529 contributions tax deductible. Check with your 529 plan or your state to find out if youre eligible.

A 529 plan allows you to save for college or higher education while receiving some type of tax benefit. Earnings from 529 plans are not subject to federal tax and generally not subject to state tax when used for qualified education expenses such as tuition, fees, books, as well as room and board. The contributions made to the 529 plan, however, are not deductible.

For more information about 529 Contributions, visit:

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Is A 529 Plan Tax Deductible In The State Of Colorado

Here’s how to make the most of 529 plans

Yes, Colorado taxpayers can claim a state deduction.Previously unlimited, caps were put in place in June 2021.

The Colorado State Legislature passed a June 2021 bill that places an annual cap on the state income tax deduction for 529 plan contributions based on filing status. There is is a per taxpayer/per-beneficiary cap of $20,000 annually for single filers. For joint filers, there is per taxpayer/per-beneficiary cap of $30,000 annually.

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Can My Child Use The 529 Plan Funds For Expenses Other Than Education

Your child can use money in their 529 plan for purposes besides qualified education expenses. However, they will pay a 10% penalty on withdrawals and pay income taxes.

Fortunately, 529 plans have the flexibility to help you use the funds without penalty. First, you can make another one of your children or yourself the designated beneficiary by rolling the funds into another 529 plan. Any member in your immediate family with intentions to further their education can benefit.

Second, The Setting Every Community Up for Retirement Enhancement Act of 2019 allows 529 plans to pay for non-college educational courses, such as trade apprenticeships. For example, costs associated with becoming an electrician or carpenter may qualify for 529 coverage.

Third, you can repay $10,000 of student loans once per beneficiary or eligible family member with a 529 plan and $10,000 of K-12 education costs each year. In addition, eligible K-12 education includes private school tuition.

How Do I Withdraw Money From Colorados Scholar Choice Plan

You can take money out of the plan by logging on to your account or by filling a withdrawal request form. However, you should seek your financial advisor before making a withdrawal to discuss possible tax implications and how to best use the funds. If youre not sure how to find a professional, you can use our financial advisor matching tool, which links you to qualified professionals in your area based on your preferences and financial situation.

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Matching Grants And Scholarships

Colorado also offers a Matching Grant Program for lower- and middle-income families. The program provides a dollar-for-dollar match of up to $500 in contributions to accounts with an eligible beneficiary. The application period for the 2021-22 program begins on October 18, 2021.

The CollegeInvest 529 Scholarship program, which is intended for middle-income families, provides a $2,000 scholarship to any eligible full-time student at a college or vocational school who:

  • Is a Colorado resident.
  • Has maintained or has had a parent or guardian maintain a CollegeInvest account with a minimum balance of $2,000 for at least four years.
  • Can substantiate an expected family contribution toward higher education of up to $45,000 and can not receive a Federal Pell Grant.

Plans Versus Other Savings Accounts

Step by Step Guide to Open Colorado 529 Plan Online

Colorado residents who are deciding whether to use a Colorado 529 plan or other savings vehicles need to consider the potential savings of a state income tax deduction. While the deduction is attractive, it must not take advantage of the benefits of using other, non-deductible accounts, such as B. a Coverdell Education Savings Account or a Uniform Transfers to Minors or Uniform Gifts to Minors custody account. Talk to your financial advisor or similar professional about which plan is likely to give you the most benefit.

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Can A Colorado 529 Plan Lose Money

Yes, a 529 plan is an investment plan with different types of investment options. The investment options offer different levels of market risk.

Colorado does offer an FDIC insured plan when you choose the SmartChoice College Savings Plan. Other plans, similarly to mutual funds, stocks, and bonds, are not FDIC insured.

Speak with a qualified financial advisor about your financial goals and different investment portfolio options.

How To Choose A 529 Plan

When it comes time to choose the best 529 plan for your family, look at whats available within your home state first. Many plans offer special incentives such as tax breaks for state residents, so you may find a better deal by starting your search at home.

Once youve noted the details of your home states plan, compare it to other states offerings. As you review each 529 plan, pay attention to the following factors.

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Dont Waste 529 Tax Benefits

Qualified tuition programs , also known as 529 plans, offer substantial tax benefits. Investment earnings inside such plans avoid income tax. In addition, distributions from 529 plans to cover qualified higher education costs are tax-free.

However, youll lose the full value of 529 tax benefits if youre not careful about managing distributions. One trap is taking out too much money another involves not pulling enough money from your 529.

Expensive Excess

The risk of insufficient 529 withdrawals may be easier to grasp. If you leave money in the account after all the relevant college bills have been paid, further distributions may be highly taxed.

Example 1: Art and Kim Wilson open up a 529 account for their daughter, Eve. After Eve graduates and gets a full time job, there is still $20,000 left in the 529 account. The senior Wilsons have no younger children to whom they might transfer the account.

If the Wilsons want to use that $20,000 for purposes other than education, distributions will be taxable. The taxable amount will depend on the ratio of earnings to the overall account value. The Wilsons also will owe a 10% penalty on the amount included in income.

However, you cant claim these education tax benefits and 529 qualified distributions for the same expenses. To claim either credit or the deduction, you may owe tax on your 529 distribution.

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Family QTP Transfers:

New Jersey Tax Deductions

What you shouldn’t pay with your 529 plan

There are no income restrictions related to the 529 plan. The standard 5 year deductible for one large lump sum payment applies to the New Jersey 529 program.

  • Filers may deduct up to $10,000 so long as their gross income is $200,000 or less.
  • Opening an account may make the beneficiary eligible for a $3,000 scholarship at a New Jersey College.
  • The initial deposit into a New Jersey 529 account will be met with a state grant up to $750.
  • New Jerseys maximum account balance for 529 plans is $305,000.

For more information on New Jersey 529 plans,

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South Carolina Tax Deductions

South Carolina is one of 4 states where every dollar contributed to a 529 plan is deductible. 529 accounts can only accept cash contributions rollovers with physical assets must be liquidated first in order to facilitate transfer.

  • 5.64% of the 529 account balance is factored into determining a college students Expected Family Contribution.
  • If a student receives a refund on college expenses paid for with 529 funds, it will not be treated as a non qualified withdrawal if the money is returned to the 529 within 60 days.
  • The account owner may also contribute up to $75,000 in a single year without facing gift tax consequences so long as no contributions are made in the succeeding 4 years.
  • For joint filers contributing 5 years worth of payment in 1 year, the deductible is $150,000.
  • South Carolinas maximum account balance for 529 plans is $520,000.

For more information on South Carolina 529 plans,

North Dakota Tax Deductions

The standard 5 year deductible for one large lump sum payment applies to the North Dakota 529 program. North Dakotas 529 also allows the use of 529 assets to pay for k-12 tuition without being subject to recapture.

  • $5,000 deduction for single filers.
  • $10,000 deduction for couples filing jointly.
  • The tax deduction is available only if the contributor is a resident and contributing into an in-state 529 account.
  • North Dakotas maximum account balance for 529 plans is $269,000.

For more information on North Dakota 529 plans,

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Plan Contributions For K

The Tax Cuts and Jobs Act of 2017 expanded the definition of 529 plan qualified expenses to include up to $10,000 in K-12 tuition per year, per beneficiary. However, some states have not conformed with the federal law and consider K-12 tuition a non-qualified 529 plan expense. Families in non-conforming states who use 529 plan funds to pay for K-12 tuition may be subject to state income tax on the earnings portion of the non-qualified distribution, and state income tax benefits may be subject to recapture.

What Are Some Colorado 529 Plan Benefits And Tax Advantages

529 College Savings Plan Tips and Tricks

Funds you invest in a 529 plan grow tax-deferred. And funds that the student eventually withdraws from the plan towards qualified educational costs are free from federal taxes.

A common misconception is that these 529 plan assets will disqualify your child from financial aid. On the contrary, 529 plan funds are treated more favorably in the financial aid formula than other savings in your childs name through a custodial account such as an UTMA/UGMA. This is because assets in a childs 529 plan belong to the parent not child, and FAFSA gives preferential tax treatment to assets belonging to a students parent versus the student.

If your child is an Einstein or football star, and manages to score a free ride to school, you can still repurpose those funds. You can take out an amount equal to the scholarship fund amount from the 529 plan without incurring the 10% penalty tax fee youd normally have to pay on funds not going to qualified education costs.

And for many, a 529 plan can be used to transfer wealth. Contributing to a 529 plan lets grandparents or other contributors reduce the size of their taxable estate while helping them fund a grandchilds or family members education. Its even possible to make five years worth of contributions in a single year, up to $75,000 and still get the gift tax exclusion.

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What Happens To A Colorado 529 Plan If Not Used

There is no time in which the funds within a Colorado 529 plan need to be withdrawn. Unused funds can remain in the account and continue to grow tax-deferred.The account owner may also choose to change the beneficiary, without penalty, to another individual with a social security number who is a member of the original beneficiarys family and a United States citizen. This is not limited to immediate family members funds can be transferred to cousins, nieces, nephews, and other close relatives. The account owner can close the account if not used, but funds in the account will be subject to federal and state income tax as well as a 10% penalty on the account earnings.

And as outlined earlier in this article, 529 plans allow the account owner to withdraw the amount a beneficiary receives in scholarships without incurring the 10% penalty.

Tips For Contributing A Gift To A 529 Plan

  • Contributing to a 529 plan can have significant tax ramifications if you accidentally surpass your annual or lifetime limits. A financial advisor can help you optimize giving and minimize your tax burden. Finding the right financial advisor that fits your needs doesnt have to be hard. SmartAssets free toolmatches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
  • Gift contribution limits are changing next year, and so are 529 plans themselves. Use this guide to check the best 529 plans for 2023.

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