Massachusetts 529 Tax Deduction: $5,000 Per Beneficiary, $2,000 for Grandparents

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Massachusetts 529 Tax Deduction: $5,000 Per Beneficiary, $2,000 for Grandparents

Worried about your child's college expenses? By investing in a 529 plan, you can start saving early to help them pay for college while taking advantage of Massachusetts' generous tax benefits.

Benefits of Massachusetts 529 Tax Deduction:

$5,000 state income tax deduction for contributions to a Massachusetts 529 plan per beneficiary.
$2,000 state income tax deduction for contributions made by grandparents or other non-parents to a Massachusetts 529 plan per beneficiary.
Tax-free investment growth on all earnings within the 529 plan
Tax-free withdrawals when used to pay for qualified education expenses.

How the 529 Tax Deduction Works

On your Massachusetts state income tax return, you can deduct the following amounts for 529 plan contributions:

massachusetts 529 tax deduction

$5,000 per beneficiary if the account owner is the parent or legal guardian of the beneficiary
$2,000 per beneficiary if the account owner is a grandparent or other non-parent relative of the beneficiary.

Examples of 529 Tax Deductions

If you contribute $10,000 to a Massachusetts 529 plan for your child, you can deduct $5,000 from your state income taxes.
If your grandparents contribute $5,000 to a Massachusetts 529 plan for your child, they can deduct $2,000 from their state income taxes.

To qualify for the tax deduction, the contributions must be made to a Massachusetts 529 plan and the beneficiary must be a Massachusetts resident.

Table 1: Massachusetts 529 Tax Deduction Summary

Taxpayer	Contribution Limit	Deduction Limit
Parent/Legal Guardian	$5,000 per beneficiary	$5,000 per beneficiary
Grandparent/Non-Parent Relative	$2,000 per beneficiary	$2,000 per beneficiary

Investment Options within a 529 Plan

Massachusetts offers a variety of investment options within its 529 plan, including age-based portfolios, mutual funds, and exchange-traded funds (ETFs). You can choose the investment option that best meets your risk tolerance and investment goals.

Massachusetts 529 Tax Deduction: $5,000 Per Beneficiary, $2,000 for Grandparents

Using 529 Plan Withdrawals

Withdrawals from a 529 plan are tax-free when used to pay for qualified education expenses, including:

Tuition and fees
Room and board
Books and supplies
Computers and other equipment
Certain student loans

Table 2: Qualified Education Expenses

Expense	Example	Deductible?
Tuition and Fees	College tuition, graduate school fees	Yes
Room and Board	On-campus housing, off-campus housing	Yes
Books and Supplies	Textbooks, notebooks, pens	Yes
Computers and Other Equipment	Laptop, tablet, printer	Yes
Certain Student Loans	Federal student loans, private student loans	Yes

What if My Child Doesn't Go to College?

If your child does not use the money in their 529 plan for qualified education expenses, you can withdraw the funds, but you will have to pay income tax on the earnings and a 10% penalty.

Worried about your child's college expenses?

Table 3: Non-Qualified Withdrawals

Withdrawal Reason	Tax Consequences
Not used for qualified education expenses	Income tax on earnings + 10% penalty
Overcontribution	Income tax on earnings + 10% penalty
Beneficiary receives grant or scholarship	Income tax on earnings, no penalty

Table 4: Alternatives to Using 529 Plan Funds

Alternative	Tax Consequences
Gift to a non-qualified beneficiary	Income tax on earnings, no penalty
Convert to a different 529 plan	No tax consequences if the new plan is in the same state
Withdraw the funds and pay the penalty and taxes	Income tax on earnings + 10% penalty

Conclusion

Massachusetts' 529 tax deduction is a valuable tool to help families save for college expenses. By taking advantage of this deduction, you can reduce your state income taxes while saving for your child's future education.

Frequently Asked Questions

What is the maximum amount I can contribute to a Massachusetts 529 plan?

The maximum contribution limit is $5,000 per beneficiary, per year.

Is there a minimum amount I need to contribute to get the tax deduction?

No, there is no minimum contribution amount.

Can I contribute to multiple 529 plans for the same beneficiary?

Yes, you can contribute to multiple 529 plans for the same beneficiary. However, the total annual contribution limit is still $5,000 per beneficiary.

What happens if I contribute more than the annual limit?

Any contributions that exceed the annual limit will be considered an overcontribution and will be subject to income tax and a 10% penalty.

Can I withdraw the money from a 529 plan for any reason?

No, 529 plan withdrawals are only tax-free if they are used for qualified education expenses. Non-qualified withdrawals will be subject to income tax and a 10% penalty.

What if my child receives a scholarship or grant?

If your child receives a scholarship or grant that covers all or part of their education expenses, you may be able to withdraw the corresponding amount from the 529 plan without paying a penalty. However, you will still need to pay income tax on the earnings.