Out of state 529 but still get in-state tax deduction?

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phatkev
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Out of state 529 but still get in-state tax deduction?

Post by phatkev » Mon Jan 29, 2018 10:46 pm

I am a CT resident and have been investing in the CT 529 program for my kids. I can deduct up to $10k in state taxes/year.

I would like to invest in other state plans that have better, lower cost investment options but I still want to get the tax benefit.

Can I invest initially the $10K in the CT plan and then transfer the money into another state’s plan? Would I still be able to claim the tax benefit since I initially invested with CT but the money is no longer there?

Thanks for the help.

Choy
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Re: Out of state 529 but still get in-state tax deduction?

Post by Choy » Tue Jan 30, 2018 12:00 am

You would have to check with CT 529. Every state is different. I know in NY, they make you pay back the savings you got from the tax deduction if you rollover to another state.

mega317
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Re: Out of state 529 but still get in-state tax deduction?

Post by mega317 » Tue Jan 30, 2018 3:16 am

I think a few states will even give you the tax credit if you never use their 529. It should be easy for you to look up and report back to us.

DarkHelmetII
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Re: Out of state 529 but still get in-state tax deduction?

Post by DarkHelmetII » Tue Jan 30, 2018 5:54 am

In DC my understanding is that you have to keep the money in there for two years, then you are free to move it elsewhere with better / cheaper investment options. Otherwise they will retroactively claw back the state level deduction.

So gets back to that you need to check state-specific rules.

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Steelersfan
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Re: Out of state 529 but still get in-state tax deduction?

Post by Steelersfan » Tue Jan 30, 2018 6:45 am

I found this with Google search:


In addition to federal tax benefits, many states offer full or partial state tax deductions for contributions to a 529 plan. Over 30 states, including the District of Columbia have such incentives available.

Six of these states offer taxpayers a deduction for contributions to any state’s 529 plan: Arizona, Kansas, Minnesota, Missouri, Montana and Pennsylvania.

Seven states currently have a state income tax, but do not offer a deduction for contributions: California, Delaware, Hawaii, Kentucky, Maine, New Jersey, and North Carolina.


https://www.savingforcollege.com/articl ... ally-worth

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Bounca
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Re: Out of state 529 but still get in-state tax deduction?

Post by Bounca » Tue Jan 30, 2018 6:55 am

Live in Pennsylvania.

Original our 529 was with New Yorks plan, moved to Illinois a few years back. In both cases every year I have claimed the tax deduction without complications/questions.

motorcyclesarecool
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Re: Out of state 529 but still get in-state tax deduction?

Post by motorcyclesarecool » Tue Jan 30, 2018 7:34 am

VT residents get a non-refundable tax credit, and we can roll out to a lower cost state the following year with no clawback. The law explicitly bans using the same contribution to claim the credit in multiple years by making round trip rollovers, but doesn’t claw back the credit if you do a series of one-way rollovers out-of-state. So move to Bennington or Brattleboro. The rest of MA/CT/NYC/NJ seems to be.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

runner3081
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Re: Out of state 529 but still get in-state tax deduction?

Post by runner3081 » Tue Jan 30, 2018 11:34 am

As others have mentioned, AZ allows it. We have an Ohio plan, but live and receive the state tax deduction in AZ.

pshonore
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Re: Out of state 529 but still get in-state tax deduction?

Post by pshonore » Tue Jan 30, 2018 11:43 am

phatkev wrote:
Mon Jan 29, 2018 10:46 pm
I am a CT resident and have been investing in the CT 529 program for my kids. I can deduct up to $10k in state taxes/year.

I would like to invest in other state plans that have better, lower cost investment options but I still want to get the tax benefit.

Can I invest initially the $10K in the CT plan and then transfer the money into another state’s plan? Would I still be able to claim the tax benefit since I initially invested with CT but the money is no longer there?

Thanks for the help.
Note its not 10K off your state tax. It's 10K off your income that is used to figure the tax. That's about a $500-$600 tax saving for most in CT

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Smorgasbord
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Re: Out of state 529 but still get in-state tax deduction?

Post by Smorgasbord » Tue Jan 30, 2018 11:54 am

Obviously you should take a closer look, but at first glance it does not appear that CT has a recapture provision in their 529 plan, so there may not be any penalties for rolling over the funds to a better plan.
http://www.savingforcollege.com/529_pla ... &plan_id=8

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