Tax Benefits of South Carolina's 529 College Savings Plan
If you live in South Carolina and are concerned about paying college tuition, you may want to consider paying into the state's 529 College Savings Plan. College may be years away for your child, but that will not alleviate the need to come up with the financing.
South Carolina's 529 plan has rewards regardless of your income. Whether you make a meager salary or belong to the top percent of income earners in the state, it has its advantages.
Perks of South Carolina's College Savings Plan
South Carolina residents who contribute to the state's 529 Plan receive an unlimited state income tax deduction. Yes, you read that correctly. This means that South Carolina taxpayers can deduct any amount they contribute to an SC 529 plan, as long as they have the income to deduct.
The unlimited feature is not the only reason South Carolina's college savings plan stands out from plans offered in other states. This plan has a contribution deadline of April 15 for the previous year, which is a cutoff point not found in most other states' college savings plans. Most other states require contributions to be made to 529 plans by December 31 to qualify for the tax deduction.
How Much Is the Tax Deduction Worth
If you live in South Carolina and are trying to decide whether to use your state's 529 plan or another state's plan, you must determine the potential tax savings of contributing to the in-state plan. Considering that the top South Carolina income tax rate is 7.00 percent, each $1,000 contributed can save a taxpayer up to $70 at tax time.
South Carolina does not currently offer a tax deduction to residents contributing to out-of-state plans or other types of college savings accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account.
But not all other states offer deductions for out-of-state plans. For instance, Michigan is another state that does not offer deductions on these types of accounts.
FutureScholar offers a calculator that can tell you what how much the 529 tax benefits are worth if you invest in your state's 529 plan instead of choosing an out-of-state plan.
How to Claim the Tax Deduction
The South Carolina 529 College Savings Plan is an "above the line" income adjustment. This means residents can claim it even if they do not itemize their other deductions (opting for the standard deduction). The state of New York's college savings plan is similar in this regard. In addition, there is no income phase-out on the South Carolina 529 plan tax deduction.
The tax forms have changed for 2019. Consult a tax professional if you are unsure of how to submit your 529 expenses and claim your deduction.
Reference and Documentation
Additional information on the South Carolina 529 plan tax deduction can be found on the South Carolina Department of Revenue's website and the official South Carolina FutureScholar 529 Plan website. It's never too soon to start thinking about how to save for college. So, even if you have small children, start researching now to make the most of your tax benefits before time runs out.