529 Deduction in DC: A Smart Way to Save for College

What is a 529 Plan?

A 529 plan is a tax-advantaged savings plan designed to help families save for future college costs. Contributions to a 529 plan are made on an after-tax basis, but earnings grow tax-free and withdrawals are tax-free when used to pay for qualified education expenses.

529 Deduction in DC

The District of Columbia offers a state income tax deduction for contributions to a 529 plan. The deduction is available for both residents and non-residents who contribute to a DC-sponsored 529 plan. The maximum deduction is $2,500 per taxpayer, or $5,000 for married couples filing jointly.

Benefits of a 529 Deduction

The 529 deduction in DC can provide significant tax savings for families saving for college. According to the College Savings Plans Network, a $2,500 deduction can save a taxpayer approximately $300 in state income taxes.

How to Claim the 529 Deduction

To claim the 529 deduction, taxpayers must complete the DC Form D-40, "District of Columbia Individual Income Tax Return." The deduction is claimed on Line 25 of the form. Taxpayers must also attach a copy of their 529 plan statement to their tax return.

DC-Sponsored 529 Plans

There are two DC-sponsored 529 plans:

• DC College Savings Plan (DC College)
• DC CollegeAccess 529 Savings Program

Both plans offer a variety of investment options, including age-based portfolios and individual investment funds.

Choosing a 529 Plan

When choosing a 529 plan, families should consider the following factors:

• Investment options: The plan should offer a variety of investment options to meet the family's risk tolerance and investment goals.
• Fees: The plan should have low fees that do not eat into the investment returns.
• State tax benefits: The plan should offer state tax benefits, such as a deduction or credit, for contributions.

Tips and Tricks for Maximizing the 529 Deduction

• Contribute early: The earlier you start saving, the more time your money has to grow tax-free.
• Contribute the maximum amount: The maximum deduction in DC is $2,500 per taxpayer, or $5,000 for married couples filing jointly.
• Consider a 529 plan with low fees: Fees can eat into the investment returns, so it is important to choose a plan with low fees.
• Rebalance your portfolio regularly: As your child gets closer to college, you may want to rebalance your portfolio to reduce risk.

FAQs

1. Who is eligible for the 529 deduction in DC?

The deduction is available for both residents and non-residents who contribute to a DC-sponsored 529 plan.

2. What is the maximum deduction?

The maximum deduction is $2,500 per taxpayer, or $5,000 for married couples filing jointly.

3. How do I claim the deduction?

To claim the deduction, taxpayers must complete the DC Form D-40, "District of Columbia Individual Income Tax Return." The deduction is claimed on Line 25 of the form. Taxpayers must also attach a copy of their 529 plan statement to their tax return.

4. What are the benefits of a 529 plan?

529 plans offer a number of benefits, including tax-free earnings and tax-free withdrawals when used to pay for qualified education expenses.

5. What should I consider when choosing a 529 plan?

When choosing a 529 plan, families should consider the following factors:

• Investment options
• Fees
• State tax benefits

6. What are some tips for maximizing the 529 deduction?

• Contribute early
• Contribute the maximum amount
• Consider a 529 plan with low fees
• Rebalance your portfolio regularly