Tax Benefits of New Mexico's 529 College Savings Plan
How to claim an income tax deduction for funding the plan
If you are a resident of New Mexico and plan to pay for your child's college tuition, it's important for you to know the tax benefits available to you as a contributor to the state's 529 college savings plan.
With this review of the plan, learn which tax benefits you may enjoy as a contributor and how New Mexico's plan stands out from other states' plans.
What's In Store for You?
To say that New Mexico's 529 plan has perks would be an understatement. That's because residents who contribute to the college savings program receive a state income tax deduction for the entire amount contributed. In other words, New Mexico's 529 plan tax deduction is "unlimited." The state is one of only four in the country to provide an unlimited deduction to contributors to its 529 plan.
The New Mexico 529 plan tax deduction is an "above the line" income adjustment, meaning residents can claim it even if they do not itemize their other deductions (opting for the standard deduction). There is no income phaseout or maximum on the New Mexico college savings plan tax deduction.
The New Mexico Higher Education Department has outlined some of the other benefits of 529 plans as well, including "compelling savings advantages, such as tax-deferred accumulation, federal tax-free earnings for qualified withdrawals, reductions in estate taxes, and special gift tax treatment. Additionally, 529 College Savings Programs offer personal control and flexibility over assets and beneficiaries."
New Mexico's HED points out that very few students receive full scholarships to college. As a result, families must devise a multi-pronged approach to pay for a child's higher education. This includes student loans and financial aid as well as savings plans. Money invested in a 529 college savings plan has the chance to grow tax-free as well as enjoy compounded growth.
Value of the New Mexico 529 Plan Tax Deduction
New Mexico residents trying to decide whether to use one of the state's college savings plans or another state's Section 529 plan need to account for the potential tax savings of contributing to their in-state plan. New Mexico does not currently offer a tax deduction to residents contributing to out-of-state plans. This is the case with many other states as well.
Considering that the top New Mexico income tax rate is 4.90 percent, each $1,000 contribution can save a taxpayer up to $49 at tax time. Currently, New Mexico does not offer a tax deduction for contributing to any other types of college savings accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account. This is not unusual and puts the state in line with others regarding such accounts.
Consult with a tax advisor or another professional of this sort if you have questions about the most appropriate college savings plan for your family.
Claiming the New Mexico 529 Plan Tax Deduction
Residents can claim the New Mexico 529 plan tax deduction on line 13 of their New Mexico Form PIT-ADJ. Additional information on the New Mexico 529 plan tax deduction can be found on the New Mexico Higher Education Department Website.