N.Carolina 529 no longer state tax decuctible

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woof755
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N.Carolina 529 no longer state tax decuctible

Post by woof755 » Sun Nov 24, 2013 4:45 pm

So, the (political comment omitted so Alex won't have to delete) NC general assembly has done away with the state income tax deduction for the NC 529 plan. With fees slightly higher than the Vanguard plan (run through Nevada), and VG's ability to roll outside 529s into it, I think I will start the rollover process, just for simplicity's sake.

Couple questions:

Has anyone ever rolled a 529 plan over into another 529 plan, and if so was is smooth or painful?
Are there any compelling reasons to stay with my own state plan (is there some public service other than minimal effect of keeping fees down that I could do by staying?)
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Re: N.Carolina 529 no longer state tax decuctible

Post by rob » Sun Nov 24, 2013 6:06 pm

I moved one a very long time ago and it was pretty easy..... If your no lobnger gettiong a state tax breal then I agree makes sense to move to a better plan.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

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dandan14
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Re: N.Carolina 529 no longer state tax decuctible

Post by dandan14 » Sun Nov 24, 2013 7:20 pm

This is news to me. When did they announce this?
We just moved away from NC to OH -- so I could probably take a 529 deduction in either state this year since I've paid taxes in both.

But if NC just cancelled the deduction -- then that solves that.

Not sure what they're thinking. That really disincentivizes saving for college.
If you can't take the NC deduction, Utah is the best from what I understand.

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plannerman
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Re: N.Carolina 529 no longer state tax decuctible

Post by plannerman » Mon Nov 25, 2013 9:45 am

I don't know about NC, but several states recapture the tax savings if you rollover a 529 plan to another state. It might be good to check the NC law.
plannerman

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Re: N.Carolina 529 no longer state tax decuctible

Post by sscritic » Mon Nov 25, 2013 9:57 am

dandan14 wrote:This is news to me. When did they announce this?

It hit bogleheads on Friday; wiki already updated.

viewtopic.php?f=2&t=126904

To the extent that this is a request for information about how to transfer from one plan to another, this thread is not a dupe.

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Re: N.Carolina 529 no longer state tax decuctible

Post by Big Worm » Mon Nov 25, 2013 10:01 am

I read this the other day and was pissed off. I thought the tax break was pulled all of a sudden. However the truth is that this has been planned all along. The tax break was set to expire next year when the plan was created.

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Re: N.Carolina 529 no longer state tax decuctible

Post by bornloser » Mon Nov 25, 2013 11:11 am

Is there a way to find out if a particular state will try to recapture the tax break (ie, a list of these states)?
Thanks

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Re: N.Carolina 529 no longer state tax decuctible

Post by Barry Barnitz » Mon Nov 25, 2013 12:11 pm

bornloser wrote:Is there a way to find out if a particular state will try to recapture the tax break (ie, a list of these states)?
Thanks


Hi:

529 plan recapture tax on rollovers - Bogleheads

regards,
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Re: N.Carolina 529 no longer state tax decuctible

Post by dandan14 » Mon Nov 25, 2013 12:50 pm

The good news is that the state income tax in NC is dropping -- which is likely more valuable than the 529 deduction.

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Re: N.Carolina 529 no longer state tax decuctible

Post by paulsiu » Mon Nov 25, 2013 12:52 pm

Could you start a new plan in another state and leave whatever you have in NC. I admit that it sucks if you are closer to withdraw, but if you are just starting out this may be the way to go.

I am more annoy that there's no loophole to rollover if they change the rule.

paul

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Re: N.Carolina 529 no longer state tax decuctible

Post by dandan14 » Mon Nov 25, 2013 1:01 pm

plannerman wrote:I don't know about NC, but several states recapture the tax savings if you rollover a 529 plan to another state. It might be good to check the NC law.
plannerman


Sorry...can you (or someone) explain the recapture provisions? If I roll out of NC with penalties and credits in another state?

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Re: N.Carolina 529 no longer state tax decuctible

Post by sscritic » Mon Nov 25, 2013 1:16 pm

I know of one form of recapture. NY wants to recapture the tax credit they gave you if you make a non-qualified withdrawal. There was a bargain made: you put money into a 529 for education, NY gave you cash (in form of tax refund). You break your end of the bargain, and NY wants their cash back. That is referred to as "recapture."

Whether a particular state wants to recapture the cash they gave you if you rollover to a plan in another state, I have no idea. You have to read the laws for that state. In the case of NY, the NY income tax return instructions tell you what to do. [That shouldn't be surprising; you got a tax credit on your tax return, so you have to pay back the undeserved tax break on a tax return.]

If you have made a bargain with NC, perhaps you should check the terms of your agreement. If it were I, I wouldn't trust the people here to give you an accurate answer,* I would want to see what the State of North Carolina says in their official documents, both the tax forms and code and the 529 agreement you signed.

* without supporting evidence, either a quote from or a link to an official document.

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Re: N.Carolina 529 no longer state tax decuctible

Post by rkhusky » Mon Nov 25, 2013 1:41 pm

Barry Barnitz wrote:
bornloser wrote:Is there a way to find out if a particular state will try to recapture the tax break (ie, a list of these states)?
Thanks


Hi:

529 plan recapture tax on rollovers - Bogleheads

regards,


I think that Michigan also recaptures its state tax deduction when rolling over.

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Re: N.Carolina 529 no longer state tax decuctible

Post by Auream » Mon Nov 25, 2013 1:44 pm

dandan14 wrote:The good news is that the state income tax in NC is dropping -- which is likely more valuable than the 529 deduction.


Exactly. I'd much rather save money whether or not I put cash into a 529 plan than only if I put money into the 529. Arguably, for the vast majority of people who are not maxing out both their IRAs and 401(k), encouraging saving in a 529 is the wrong thing to do anyway. Good luck convincing people that money is fungible, but at least we can not subsidize sub-optimal behavior.

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Re: N.Carolina 529 no longer state tax decuctible

Post by sscritic » Mon Nov 25, 2013 1:55 pm

dandan14 wrote:Sorry...can you (or someone) explain the recapture provisions? If I roll out of NC with penalties and credits in another state?

Here is what the wiki says. The link was posted by Barry B before you asked your question.
The principal portion of rollovers and nonqualified withdrawals from this plan are included in North Carolina taxable income to the extent of prior North Carolina tax deductions. Nonqualified withdrawals for this purpose do not include withdrawals made as the result of the beneficiary's death or disability.

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Re: N.Carolina 529 no longer state tax decuctible

Post by bornloser » Mon Nov 25, 2013 3:52 pm

Thanks for the link Barry B. I live in a state without a recapture penalty, good to know.

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Re: N.Carolina 529 no longer state tax decuctible

Post by dickenjb » Mon Nov 25, 2013 3:59 pm

NY plan beats NV imho.

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Re: N.Carolina 529 no longer state tax decuctible

Post by woof755 » Tue Nov 26, 2013 11:10 am

dandan14 wrote:The good news is that the state income tax in NC is dropping -- which is likely more valuable than the 529 deduction.


Good news for high income folks.
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Re: N.Carolina 529 no longer state tax decuctible

Post by NCmoney » Tue Dec 17, 2013 4:26 pm

paulsiu wrote:Could you start a new plan in another state and leave whatever you have in NC. I admit that it sucks if you are closer to withdraw, but if you are just starting out this may be the way to go.

I am more annoy that there's no loophole to rollover if they change the rule.

paul


Paul, I had the exact same thought. Leave what you have in the NC plan, stop making contributions there and start contributing to a plan in another state with better fees and management. Have you done this? Do you think avoiding the recapture costs (~$250 by my estimate for me) outweighs the value of having what you already contributed in the NC529 in another plan?

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Re: N.Carolina 529 no longer state tax decuctible

Post by Medviersi » Tue Feb 23, 2016 9:25 pm

Hello OP and other respondents,
I came across this thread while trying to understand the latest on rollover of a NC529 plan to a 529 elsewhere, specifically if previous state tax deductions were recaptured. . . Did you ever do this and find out what was involved? It looks like there is a new-ish plan document

https://www.cfnc.org/static/pdf/savings ... am2015.pdf

and as far as I can understand it it doesn't describe that the deductions are recaptured. (ctrl+F doesn't find the word "recapture" at all!). Can anybody who speaks 529/Tax-ese confirm this? I don't see NC listed in the bogglewiki on this matter but wasn't sure if that is absence of proof or proof of absence.
https://www.bogleheads.org/wiki/529_pla ... _rollovers

Thanks for any thoughts or guidance

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Re: N.Carolina 529 no longer state tax decuctible

Post by JimJim » Wed Feb 24, 2016 4:51 pm

http://www.ncleg.net/EnactedLegislation/Statutes/HTML/BySection/Chapter_105/GS_105-134.6.html

Search that link for "529". There are two hits. One for years prior to 2012, and it looks to me like another one for years 2012-2014. I am not a lawyer, perhaps someone else with a better legal understanding can interpret the code. I'm just good at searching the internet :wink:

My layman's take is that there was a recapture in effect until the big tax changes from 2014. Now, due to the simpler tax code, there is no recapture.

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Re: N.Carolina 529 no longer state tax decuctible

Post by Medviersi » Wed Feb 24, 2016 9:12 pm

Thanks Jim! Nice internet searching there ;) As I understand it everything listed in the second section (§ 105-134.6. (Effective for taxable years beginning on or after January 1, 2012 and repealed effective for taxable years beginning on or after January 1, 2014) is no longer in effect?

Everything I have researched seems to point to recapture no longer being in place but I wish I could find this officially stated in clear language!

Thanks for your investigation!

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Re: N.Carolina 529 no longer state tax decuctible

Post by JimJim » Thu Feb 25, 2016 8:37 am

Yes, the legislature really rewrote the tax laws for 2014 (at least the personal income tax), so I think recapture went away then. I also tried searching the NC Department of Revenue webpages to see if "529" appeared anywhere and couldn't find it for tax year 2015. I dug into the "adjustments to federal income" where I think it would be applied and couldn't find anything.

Maybe TurboTax takes an opinion on the subject - if you use that you could give it a try in an experimental return.

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Re: N.Carolina 529 no longer state tax decuctible

Post by euroswiss » Thu Oct 26, 2017 4:50 pm

Hi,
I'm relatively new to the board, so I'm not sure what forum rules are with regard to "reviving" old threads - if this one is too old, I'm happy to start a new one.

Has anyone done a rollover of NC529 into some other state 529? Is it now clear that there is no recapturing provision for North Carolina? I have searched fairly extensively (and have a corresponding question in with CFNC also - still waiting for answer....), and I THINK the answer may be that NC does NOT have a recapture provision anymore. However, it is surprisingly difficult to find "hard" info on this. Any thoughts, links, citations?

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Re: N.Carolina 529 no longer state tax decuctible

Post by harvestbook » Thu Oct 26, 2017 6:55 pm

I had a NC 529 both the last year there was a deduction and the following year (before I realized the deduction was gone). I just left that amount in the account, it's done fine and the extra fees aren't all that egregious. But I will start drawing it down next year so it wasn't worth the hassle of moving it.

I did have a 529 in an American fund through Edward Jones before that--part of the reason the bell finally went off is I realized the EJ manager didn't tell me I'd be better off doing the NC 529 fund and getting the tax deduction (instead he put me in mutual funds with a 5 percent load.) Luckily I encountered John Bogle and Paul Merriman at around that time. Ah well, the price of ignorance, but soon the manager got strike three and I rolled it into Vanguard's 529 Nevada fund with zero hassle.

So if there are some years to go before drawing down, or you think you might let it keep growing for a later generation, it may be worth the move, but keep in mind if you contributed in the tax-deduction years that North Carolina will likely claw back that tax deduction if you roll it out of the state plan (or of course tap it for non-education use.) I am pretty sure I read this somewhere because I'm certainly not smart enough to think of it on my own.
I'm not smart enough to know, and I can't afford to guess.

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Re: N.Carolina 529 no longer state tax decuctible

Post by euroswiss » Fri Oct 27, 2017 8:56 am

harvestbook wrote:
Thu Oct 26, 2017 6:55 pm

So if there are some years to go before drawing down, or you think you might let it keep growing for a later generation, it may be worth the move, but keep in mind if you contributed in the tax-deduction years that North Carolina will likely claw back that tax deduction if you roll it out of the state plan (or of course tap it for non-education use.) I am pretty sure I read this somewhere because I'm certainly not smart enough to think of it on my own.
Thanks - yes, That is exactly the question I’m looking for input on. I know that many states do claw back the taxes, but there is some reason to believe that NC might not. I’m looking for someone who may have either done the rollover successfully, or knows where to find the answer.

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Re: N.Carolina 529 no longer state tax decuctible

Post by simas » Fri Oct 27, 2017 9:43 am

"I think that Michigan also recaptures its state tax deduction when rolling over."

Illinois as well.

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Re: N.Carolina 529 no longer state tax decuctible

Post by feehater » Fri Oct 27, 2017 10:28 am

Is the Wiki not complete on this? I had assumed that any state not on this list did not do a recapture:
https://www.bogleheads.org/wiki/529_pla ... _rollovers

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Re: N.Carolina 529 no longer state tax decuctible

Post by euroswiss » Fri Oct 27, 2017 12:36 pm

feehater wrote:
Fri Oct 27, 2017 10:28 am
Is the Wiki not complete on this? I had assumed that any state not on this list did not do a recapture:
https://www.bogleheads.org/wiki/529_pla ... _rollovers
The Wiki is very much out of date, unfortunately. Doesn't even list NC

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Re: N.Carolina 529 no longer state tax decuctible

Post by euroswiss » Fri Oct 27, 2017 12:43 pm

euroswiss wrote:
Fri Oct 27, 2017 12:36 pm
feehater wrote:
Fri Oct 27, 2017 10:28 am
Is the Wiki not complete on this? I had assumed that any state not on this list did not do a recapture:
https://www.bogleheads.org/wiki/529_pla ... _rollovers
The Wiki is very much out of date, unfortunately. Doesn't even list NC
I think I have found a more comprehensive compilation of recapture rules at http://www.savingforcollege.com/compare ... _questions

It looks like it is updated to 2017 and, good for me, NC does NOT seem to claw back the old tax deductions. For the sake of completeness, NC529 does charge a $50 fee for the rollover.

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Re: N.Carolina 529 no longer state tax decuctible

Post by LadyGeek » Fri Oct 27, 2017 8:54 pm

euroswiss wrote:
Fri Oct 27, 2017 12:43 pm
euroswiss wrote:
Fri Oct 27, 2017 12:36 pm
feehater wrote:
Fri Oct 27, 2017 10:28 am
Is the Wiki not complete on this? I had assumed that any state not on this list did not do a recapture:
https://www.bogleheads.org/wiki/529_pla ... _rollovers
The Wiki is very much out of date, unfortunately. Doesn't even list NC
I think I have found a more comprehensive compilation of recapture rules at http://www.savingforcollege.com/compare ... _questions

It looks like it is updated to 2017 and, good for me, NC does NOT seem to claw back the old tax deductions. For the sake of completeness, NC529 does charge a $50 fee for the rollover.
Maintaining the wiki needs editors who can keep an eye on those pages. If anyone wants to be an editor and help maintain those pages, please PM me.

Thanks - I have revised the wiki to notify readers that the info is out-of-date and have included the comprehensive compilation (not visible in mobile view). See: 529 plan recapture tax on rollovers

I also revised the tax recapture info (None) for: North Carolina 529 plan
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Re: N.Carolina 529 no longer state tax decuctible

Post by LadyGeek » Mon Nov 13, 2017 8:47 pm

The wiki has been revised. See: Wiki revised - 529 plans
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