Staying Local Benefits College Savers in These States
A look at tax benefits and other perks across states and 529 plans.
When Morningstar's analysts determine ratings for the nation's largest 529 college-savings plans, state-level perks set some plans apart from others. Certain tax and grant benefits or other local bonuses may make a lower-rated, home-state plan a better choice for some college savers. All 529 plans, regardless of state domicile, shelter college savers from paying federal capital gains taxes on their higher-education nest eggs.
Lowering Your Tax Bill
To make a state-by-state comparison of various tax benefits, Morningstar crunched the numbers and calculated the value a typical family could receive from sticking with its local plan. We selected a hypothetical family of four that earns $50,000, or close to the national median household income. In our scenario, the family has two children and contributes $100 per month to each child's 529 account, for a total contribution level of $2,400 per year. We looked at the state tax benefits as of October 2014 and calculated the dollar value for each plan. While the actual impact to each college savers' tax bill will depend on their family's income level and contribution amount, the results below demonstrate which states offer compelling tax benefits--good background to consider when selecting where to save.
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