Tax Advantages of Michigan's 529 Advisor College Savings Plan

What you need to know about claiming a deduction

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It's important to become familiar with the options available for education saving, such as different account types and tax benefits, if you're a Michigan resident planning to put your child through college.

The state of Michigan provides tax benefits to you if you choose to contribute to the state's 529 College Savings Plans. You may find some relief from the burden of college costs when you understand the available savings options and the people they're designed to help. These programs can lessen the burden of financial aid debt.

Tax Benefits of 529 Plans

Michigan is one of 33 states that offer residents a tax deduction or tax credit for saving for education. The goal of these plans is to provide tools for people who are looking for ways to save for college while giving a generous state tax deduction.

You can allow family and friends to make deposits in addition to making your own deposits into the account. Contributions may be eligible for a federal annual gift tax exclusion if they make deposits of less than $16,000 (single) or $32,000 (married) per year in 2022.

Because these plans are investment strategies designed to increase in value, the investments made in these accounts can grow free from federal and Michigan state taxation. The money you withdraw and use for qualified higher education expenses is exempt from federal and state income taxes.

Qualified expenses include tuition, certain types of room and board costs, computers, related technology, books, fees, and equipment.

Michigan's Options

Michigan offers a few options for its residents. The Michigan Education Savings Program (MESP) is a direct-sold 529 savings plan managed by TIAA-CREF Tuition Financing. The plan offers a choice of four investment options. These options vary in their investment strategy and degree of risk, allowing investors to select an option or a combination of options that fit their individual needs.

The State of Michigan, Allianz Global Investors Distributors, and TIAA-CREF Tuition Financing Inc. have created a flexible, advisor-sold 529 plan to assist residents wanting to save for college. You can choose from 10 enrollment year investment portfolios, two target-risk investment portfolios, one multi-fund investment portfolio, and 16 individual investment portfolios. These portfolios vary based on investment strategy and underlying risks.

Michigan also offers a prepaid tuition program, the Michigan Education Trust (MET), which is open to Michigan beneficiaries. MET contracts offer three purchase options: a lump sum payment, pay as you go, and monthly payments.

Tax Benefits of MI 529 College Savings Plans

The maximum account balance for an MI 529 plan is $500,000. Contributors to MI 529 Plans can receive a state income tax deduction of up to $5,000 per year for each adult filer or $10,000 for joint filers.

Even if a Michigan resident contributes large amounts on behalf of multiple beneficiaries, they can only deduct a maximum of $5,000 for a single return, or $10,000 for a joint return each year. Any amount contributed over the limit is not deductible and may not be carried forward.

Value of the Michigan 529 Plan Deduction

Michigan residents who are trying to decide whether to use the Michigan 529 plan versus a college savings plan from another state must account for the potential tax savings of contributing to their in-state plan. Michigan does not offer a tax deduction to residents contributing to out-of-state plans.

Michigan has a flat income tax rate of 4.25%, so the full deduction of $5,000 can save a taxpayer up to $212.50 at tax time. Michigan does not offer a tax deduction for contributing to other types of college savings accounts, such as a Coverdell Education Savings Account (ESA) or a Uniform Transfers to Minors Act (UTMA) Custodial Account.

Claiming the Tax Deduction

The Michigan 529 plan deduction is an "above the line" income adjustment. This allows residents to claim it even if they don't itemize their other deductions, opting for the standard deduction instead. You can take it and itemize or claim the standard deduction, too.

Residents can claim the Michigan 529 plan tax deduction on their Michigan MI-1040 Form. Use Schedule 1 Additions and Subtractions to claim it. Line 17 is for the Michigan Education Savings Program and MI 529 Advisor Plan, and Line 18 is for the Michigan Education Trust. 

Article Sources

  1. Internal Revenue Service. “IRS Provides Tax Inflation Adjustments for Tax Year 2022.”

  2. MESP. "Research Your MESP Investment Options."

  3. MI529advisor. "Price and Performance."

  4. MESP. "Program Details and Information."

  5. Michigan Department of Treasury. "Withholding Tax."

  6. Michigan Department of Treasury. "MI-1040 Individual Tax Forms and Instructions," Page 13.