Minnesota 529 Plan Credit

/ October 2, 2017

Minnesota enacted a new law in 2017 which allows individuals who contribute money to 529 College Savings Accounts either a subtraction or a credit against their Minnesota income tax liability.  Contributions to the plan must be made on or before December 31, 2017 to qualify.

The new law allows individuals a subtraction of up to $1,500 for a single filer or $3,000 for joint filers.  There is no income limit on the subtraction and no relationship requirement.  So, any individual can put money into a 529 Plan for any beneficiary and qualify for the subtraction.  This may be particularly beneficial for grandparents who would prefer to help out the grandkids with their schooling.  Especially in the case where the grandparents have low taxable income while asset levels remain high.

Additionally, it appears that this may couple well with the gifting limitations.  For example, if a grandparents wants to gift to the parents, they may gift up to $14,000 annually without a filing obligation.  The parents could take those dollars and contribute to a 529 plan for their child and receive additional benefit for their contribution.

As an alternative to the subtraction the new law allows a credit that is subject to income limitations.  The credit is allowed at 50% of the contribution up to a maximum credit of $500.  The full credit is allowed at various income levels as follows:

 

If your filing status is And your Adjusted Gross Income (AGI) is Your maximum credit is
Single, head of household,

married filing separate

less than $75,000 $500
between $75,000 and $500 reduced by 2% of AGI
$100,000 exceeding $75,000
more than $100,000 $0 (You are not eligible)
Married filing jointly less than $75,000 $500
between $75,000 and $100,000 $500 reduced by 1% of AGI exceeding $75,000
between $100,000 and $135,000 $250
between 135,000 and $160,000 $250 reduced by 1% of AGI exceeding $135,000
more than $160,000 $0 (You are not eligible)

Other items to consider:

  • You do not have to contribute to a Minnesota 529 plan to qualify for the subtraction or the credit. You may utilize another state’s plan and qualify
  • You will need to file Schedule M1529, Education Savings Account Contribution Credit or Subtraction to qualify for the credit. The form is not currently available but is expected to be ready in January of 2018 for the 2017 tax year.
  • The benefit is based on the net contribution to the plan for the year. If the beneficiary is drawing funds from the plan, those will need to be factored into the calculation before calculation.  (i.e. a student who draws 15,000 for school but only adds $3,000 to the plan will not qualify for any benefit to the taxpayer)

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