Estimate Your Federal and State 529 Tax Benefits

529 savings plans offer a tax-advantaged way to pay for education.

The money you invest in a 529 account grows tax-free, and you don’t pay capital gains taxes on your withdrawals if you use them for qualified education expenses.

In addition to federal tax breaks, many states offer additional tax benefits to residents who contribute to in-state plans. The benefits can come in the form of a tax deduction (subtracting your 529 contributions from your taxable income calculation) or tax credit (cash amount that you can use to offset your state income tax).

Some states even offer tax parity, extending the tax benefits to contributions made to any 529 plan, not just the in-state option.

The calculator below estimates how much you could save for education expenses if you invest in a 529 plan versus a taxable brokerage account. You should explore and confirm state tax benefits with your state tax administrator before making any investment decisions.

How to Use the Tool to Get 529 Tax Information Tailored to Your Situation

You can customize the information below to estimate your federal and state tax savings compared with a taxable brokerage account. Plus, see how much the tax savings of a 529 could be worth.

Just follow these steps:

1. Click on the blue text to customize your information. The rest of the text will automatically adjust.
2. Review the full list of assumptions that power the text by clicking on Data and References at the bottom. The default assumptions are a tax status of married filing jointly and a household income of $100,000.

Should You Consider an Out-of-State 529 Plan?

You might want to pick a high-quality plan outside your home state if one or more of the below apply to you:

• Your home state doesn’t have income tax.
• Your home state charges income tax but doesn’t provide any tax incentives.
• Your home state offers tax parity.
• You save less than $2,000 a year overall.

For the first three cases, your tax situation will be the same regardless of the plan you choose. It will be worthwhile to spend some time researching the best plan that will meet your investment preferences. Morningstar Medalist Ratings can point these investors to the best options.

If you contribute smaller amounts to your college savings plan, you may find the tax savings less appealing, even when your home state offers generous tax benefits.

Overall, it’s worth shopping around if the tax benefits of investing in your home state’s 529 plan aren’t substantial enough to make a difference in your ability to finance your beneficiary’s education. This is especially true if your home state’s direct-sold plan carries a Neutral or Negative Medalist Rating and/or relatively high fees.