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529 plan tax advantages

You can save on taxes while you save for college with New York's 529 Direct Plan. Listed are the tax benefits you can enjoy:

Federal income tax benefits
  • Your assets grow tax-deferred.
  • Withdrawals are exempt from federal income tax when used for qualified higher-education expenses.*
State income tax benefit

If you're a New York State taxpayer and account owner, you may be entitled to a generous state income tax deduction of up to $5,000 ($10,000 for married couples filing jointly) on contributions to your Direct Plan account per year. If you also own another New York's 529 College Savings Program account, your maximum total deduction on all contributions is still $5,000 per year ($10,000 for married couples filing jointly).**

Gift tax incentive

You can contribute up to $14,000 a year (or $28,000 if married filing jointly) without incurring gift taxes. Or you can choose a special election that allows you to treat a single $70,000 contribution ($140,000 for married couples) as if it were made over a 5-year period.*** Gifts in excess of these amounts may be subject to federal gift tax. For more information, consult a qualified tax advisor.

Consider the following before you open an account:

  • Your own state's plan may have additional tax benefits. If you're a resident or taxpayer of a state other than New York, you should consider whether that state offers a 529 plan with tax advantages or other benefits that aren't available through the Direct Plan. Be sure to weigh all the pros and cons of a particular plan before you choose it.
  • There's no federal income tax deduction. Contributions to any 529 college savings plan aren't deductible for federal income tax purposes. 
  • IMPORTANT: There's a rollover penalty. A rollover of assets from your Direct Plan account to a qualified education savings program in another state is subject to New York State income tax on earnings, as well as the "recapture" of all previous New York State tax deductions made during the life of the account.
  • Investment returns are not guaranteed and you could lose money by investing in the plan.

For more details about the tax benefits of the Program, read the Disclosure Booklet and Tuition Savings Agreement (PDF).

* Earnings on nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.
** Up to $10,000 is deductible from New York State taxable income for married couples filing jointly; single taxpayers can deduct up to $5,000 annually. May be subject to recapture in certain circumstances such as rollovers to another state's plan or nonqualified withdrawals.
*** In the event the donor does not survive the 5-year period, a pro-rated amount will revert back to donor's taxable estate.

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