If your employees have children or are going back to school, you can help them save for their educational costs by offering a 529 college savings plan.
Also known as a “qualified tuition program,” these voluntary benefits help parents save for college on behalf of their children (or themselves)—and come with some valuable tax benefits.
While participants pay federal income tax on 529 contributions, the money can be withdrawn tax-free and used to pay for various educational expenses. Plus, some states offer a state tax deduction for eligible 529 contributions.
This article lists out the 529 plans by state so you and your employees can compare each plan, and get a clearer picture of what saving for higher education looks like.
What types of 529 plans can I offer employees?
There are two primary types of college savings plans:
Prepaid tuition plans
Education savings plans
A prepaid tuition plan is typically sponsored by a state or specific higher education institution, and it locks you in at today’s rate. That means contributors will pay less for college overall.
In this article, we’ll focus on education savings plans, which are investment accounts designated explicitly for educational expenses sponsored by the state. You can offer these 529 plans to your employees as a benefit so that they can use the savings for:
Higher education tuition
Fees
Room and board (which includes lodging and meals)
In some states, 529 plan rules say participants can also use them for elementary or secondary school tuition. For example, the Utah 529 plan and the Pennsylvania (PA) 529 plan allow account holders to use funds for K–12 tuition expenses.
Why are the state 529 plan rules important to know about?
Because 529 plans are typically state-sponsored, it’s important for employees to know what their state’s 529 plan rules say.
In addition, while the federal government doesn’t offer any direct tax benefits for 529 plan contributions, many states do. However, those tax benefits are often restricted to state residents, and there are 529 plan withdrawal rules to consider.
Here are a few differences between 529 plans in the following states:
California: When making withdrawals from a 529 plan, California residents pay state income tax on earnings when used for certain tuition expenses.
New York: If your employee opens a New York 529 plan, they can take advantage of the in-state deduction for their contributions.
Illinois: But if the child’s grandmother lives in Illinois, it may be prudent for her to open her own Illinois 529 plan instead of contributing to the parents’ 529 plan (in NY). She’ll be able to contribute and take advantage of state tax deductions in Illinois.
Idaho and Maryland: Some states, like Idaho and Maryland, allow participants to stack deductions per beneficiary—so your employee’s parent could open 529 accounts for multiple grandchildren and take advantage of significant tax deductions.
Another 529 plan rule to keep in mind: All states that offer a 529 have a maximum balance for their account. In most cases, this is per beneficiary, so the sum of all the accounts created for one child. Sometimes, this is per account.
(If your employee thinks they might hit this maximum with 529 plans across different states, they may want to consult with a financial planner, who can help them determine exactly how to proceed.)
A breakdown of 529 plans by state*
Here are the 529 plans by state, as well as any offered tax savings. This chart reflects the current 529 plans at the time of this article’s publication. Have your employee check with their state for the most recent rules and any other requirements.
State | 529 plan | Minimum contribution | Maximum balance | State income tax deduction |
|---|---|---|---|---|
Alabama | None | $475,000 per beneficiary | $5,000 per taxpayer or $10,000 for joint returns, as long as both taxpayers are contributing | |
Alaska | $25/month | $475,000 per beneficiary | No | |
Arizona | $15/month | $476,000 per beneficiary | $2,000 per taxpayer or $4,000 for joint returns | |
Arkansas | $10/month, or $5 per pay period through payroll deductions | $366,000 per beneficiary | $5,000 per taxpayer or $10,000 for joint returns | |
California | $25, or $15 per pay period through payroll deductions | $529,000 per beneficiary | No | |
Colorado | Colorado offers four different plans, with minimums ranging from $0 to $250 | $400,000 per beneficiary | 100% deductible | |
Connecticut | $25, or $15 through payroll deductions | $300,000 per beneficiary | $5,000 per taxpayer or $10,000 for joint returns | |
Delaware | $10 | $350,000 per beneficiary | No | |
District of Columbia (Washington, D.C.) | $25 | $500,000 per beneficiary | $4,000 per taxpayer or $8,000 for joint returns | |
Florida | None | $418,000 per beneficiary | No | |
Georgia | $25, or $15 through payroll deductions | $235,000 per beneficiary | $2,000 per taxpayer or $4,000 for joint returns | |
Hawaii | $15 | $305,000 per beneficiary | 100% deductible | |
Idaho | $25 per month, or $15 per pay check through payroll deductions | $500,000 per beneficiary | $6,000 per taxpayer or $12,000 for joint returns | |
Illinois | None | $450,000 per beneficiary | $10,000 per taxpayer or $20,000 for joint returns | |
Indiana | $10 | $450,000 per beneficiary | Tax credit of up to $1,000 per year | |
Iowa | $25, or $15 through payroll deductions | $420,000 per beneficiary | $3,387 per taxpayer, per beneficiary | |
Kansas | None | $418,000 per beneficiary | $3,000 per taxpayer per beneficiary, or $6,000 for joint returns | |
Kentucky | $25 | $350,000 per account | No | |
Louisiana | $10 | Five times the current cost of the most expensive Louisiana university, calculated each year | $2,400 per taxpayer per beneficiary, or $4,800 for joint returns | |
Maine | $25 | $500,000 per beneficiary | No | |
Maryland | $25 | $500,000 per beneficiary | $2,500 per taxpayer per beneficiary | |
Massachusetts | $10 | $400,000 per beneficiary | $1,000 per taxpayer or $2,000 for joint returns | |
Michigan | $25, or $15 through payroll deductions | $500,000 per beneficiary | $5,000 per taxpayer or $10,000 for joint returns | |
Minnesota | $25, or $15 per pay period through payroll deductions | $425,000 per beneficiary | $1,500 per taxpayer or $3,000 for joint returns | |
Mississippi | $25 | $235,000 per beneficiary | $10,000 per taxpayer or $20,000 for joint returns | |
Missouri | $1 | $325,000 per beneficiary | $8,000 per taxpayer or $16,000 for joint returns | |
Montana | $25 per month, or $15 with payroll deductions | $396,000 per beneficiary | $3,000 per taxpayer or $6,000 for joint returns | |
Nebraska | None | $400,000 per beneficiary | $5,000 per taxpayer or $10,000 for joint returns | |
Nevada | $15 per month | $500,000 per beneficiary | No | |
New Hampshire | $10 | $500,000 per beneficiary | No | |
New Jersey | $25 | $305,000 per beneficiary | No | |
New Mexico | None | $500,000 per beneficiary | 100% deductible | |
New York | $0 | $520,000 per beneficiary | $5,000 per taxpayer or $10,000 for joint returns for 529 plan NY participants | |
North Carolina | $25 | $420,000 per beneficiary | No | |
North Dakota | $25 per month | $269,000 per account | $5,000 per taxpayer or $10,000 for joint returns | |
Ohio | $25 | $462,000 per beneficiary | $4,000 per beneficiary per year | |
Oklahoma | $25 per month or $15 per pay period with payroll deductions | $300,000 per beneficiary | $10,000 per taxpayer or $20,000 for joint returns | |
Oregon | $5 per month | $400,000 per account | $2,435 per taxpayer or $4,865 for joint returns | |
Pennsylvania | $25 | $511,758 per beneficiary | $15,000 per taxpayer per beneficiary, or $30,000 for joint returns | |
Rhode Island | None | $395,000 | $500 per taxpayer or $1,000 for joint returns | |
South Carolina | $25 if paying by gift card or e-gift contributions; $0 if paying by check | $500,000 per beneficiary | 100% deductible | |
South Dakota | $50 | $350,000 per beneficiary | No | |
Tennessee | $25 | $350,000 per beneficiary | $15,000 per taxpayer per beneficiary, or $30,000 for joint returns | |
Texas | $25 | $370,000 per beneficiary | No | |
Utah | None | $485,000 per beneficiary | Tax credit of up to $100 per taxpayer or $200 for joint returns | |
Vermont | $25, or $15 per pay period for payroll deductions | $352,800 per beneficiary | Tax credit of up to $250 per taxpayer or $500 for joint returns | |
Virginia | $25 | $500,000 per beneficiary | $4,000 per taxpayer | |
Washington | $25 | $500,000 per beneficiary | No | |
West Virginia | $25, or $0 if you reside in West Virginia | $400,000 per beneficiary | 100% deductible | |
Wisconsin | $25 per month | $488,000 per beneficiary | $1,640 per taxpayer per beneficiary, or $3,280 for joint returns | |
Wyoming | No plan, although Wyoming residents can participate in the Colorado 529 plan |
Some states offer prepaid 529 plans which allow different minimum contributions depending on the type of payment plan. Often, participants can only enroll in these plans during a specific enrollment period.
These are the prepaid 529 plans by state.
State | Program |
|---|---|
Florida | |
Illinois | |
Maryland | |
Massachusetts | |
Michigan | |
Mississippi | |
Nevada | |
Texas | |
Virginia | |
Washington |
Does contributing to a 529 plan count as a gift?
Yes, for federal tax purposes, 529 contributions count against the $15,000 gift limit.
Contributing more than $15,000 to one beneficiary’s account in a single year could affect an employee’s lifetime gift exclusion.
However, 529 plan rules allow contributors to frontload five years’ worth of gifts into one—meaning participants can contribute $75,000 in one go without affecting their gift exclusion.
What are the 529 plan withdrawal rules?
If your employee needs to withdraw money before their child goes to college—or if they elect not to go to college at all—the account will be subject to additional taxes. In addition to standard income taxes, a 10% federal penalty tax will be applied.
A 529 plan is a great way for your employees to improve their children’s future. With careful planning, early and frequent investments can account for rising college expenses—giving anyone going to college a much-needed boost.
