529 education savings plans — tax-advantaged accounts that are designed to help families save for educational expenses — are authorized by the federal tax code but administered at the state level. Therefore, state policy is a key factor in how these plans function. State participation is nearly universal; 49 states and the District of Columbia each offer at least one 529 plan. Most states have established policies on 529 plans regarding (state) tax-free growth, state income tax deductions, matching state funds, account limits and penalties for unqualified expenses. A 2017 change in the federal tax code redefined eligible expenses for these plans at the federal level, resulting in an uptick of state legislative activity around these programs.
State policies regarding 529 education savings plans impact a variety of issue areas across the P-20 education spectrum. When state 529 policies support saving for postsecondary expenses by reducing individuals’ state tax burden, these policies intersect issues of college access and affordability. When state 529 policies provide tax benefits to individuals using 529 accounts to pay for private K-12 education, these policies intersect with issues of school choice and the financing of public K-12 education. Finally, since the policy governance of 529 plans is split between federal and state governments, these accounts exemplify both federalism and state-federal partnerships.
This resource provides a national comparison of state policies and activities related to state 529 education savings plans. It focuses on three main categories of state policies related to 529 plans: contributions, withdrawals and eligible expenses. The information in this resource was gathered from state statutes, regulations, program information on state websites and program disclosure documents.
A full list of the data points is provided below.
Click on the metrics below for 50-State Comparisons showing how all states approach these policies. Or view a specific state’s approach by going to the individual state profiles page.
- Does the state have a program to provide state contributions to 529 plans that is accessible to all residents, regardless of income?
- Does the state have a special program that provides state contributions to 529 plans for low-income residents only?
- What is the maximum annual contribution by the account owner that would be eligible for a state income tax deduction?
- What is the maximum amount allowed in 529 plans for a single beneficiary?
- Are withdrawals for qualified expenses exempt from additional state taxes?
- What, if any, state penalties exist for withdrawals for nonqualified expenses?
- Does state statute explicitly reference the federal tax code regarding eligible expenses?
- Does the state allow K-12 tuition to be claimed as an eligible expense?
State Contributions: All Residents
Some states offer a direct or matching contribution of state funds to in-state investors. Of the states with a 529 plan, 14 have contribution programs available to all in-state residents. The state contribution amount varies depending on state policy and available funds.
State Contributions: Low-Income Residents
Some states offer a contribution of state funds to low-income residents only. Of the states with a 529 plan, 11 have state contribution programs available to residents based on income level. The majority of these programs focus on residents with incomes at or below the federal poverty level, or below certain weighted gross income levels.
Each state sets its own maximum contribution amount per beneficiary – in other words, the maximum amount a beneficiary can receive across all 529 plans in their name. In general, the maximum contribution amount is calculated based on the projected costs of postsecondary education and related costs. Some states set this limit in statute or regulation, while others set it in program guidelines or disclosure documents.
Withdrawals for nonqualified expenses require payment of deferred federal taxes, including an additional 10 percent penalty. All states that have state income tax also require 529 account holders to repay any deferred state taxes on nonqualified expenses. Four states also require additional penalties. The specifics of these penalties depend on the state programs and tax requirements.
The federal Tax Cuts and Jobs Act of 2017 modified the 529 section of the federal tax code to expand the definition of eligible expenses to include private K-12 tuition and fees, up to $10,000 per year. Starting in 2018, some states expanded the state policy definitions of eligible expenses to include private K-12 tuition and fees. Of the states with a 529 plan, 29 states and the District of Columbia allow K-12 expenses to be included as an eligible expense in state tax filings.
PUBLISHED: June 15, 2020
RESOURCE TYPE: 50-State Comparison