Friday, November 4, 2016

New 529 Plan Contribution Deduction Approved for MA Taxpayers Effective for Tax Year 2017

William Delaney, EA
Westwood, MA
The devil is really in the details on this one.  As part of H Bill 4569, An Act Relative to Job Creation and Workforce Development (123 pages in length), an income tax provision was tucked into Sections 64 through 66 and Section 138 of the Act.  Essentially, it has amended Chapter 62, Section 3A(a)(19) of the MA tax statute to allow a deduction from MA Part A income for “…the purchase of an interest in, or the amount contributed in the taxable year to an account in, a prepaid tuition program or college savings program established by the commonwealth or an instrumentality or authority of the commonwealth (emphasis added),…”  According to the web site www.savingforcollege, the eligible funds are U Fund College Investment Plan and U Plan, both managed by Fidelity.

There is a deduction recapture provision if a distribution is NOT used to pay qualified higher education expenses (as defined in the federal Code), or for a reason other than the beneficiaries death, disability or receipt of a scholarship.

The deduction per year shall not exceed $1,000 for a single person or a married person filing separately, or $2,000 for married filing jointly.   Furthermore, the deduction is limited to taxable years beginning on or after January 1, 2017 through the tax year beginning on January 1, 2021.

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