Student loan debt in the United States has soared past $1.5 trillion. As multiple generations of young Americans struggle against the burden of this debt, state governments are searching for better ways to support families who want to save money for their children's higher education.
Section 529 plans are IRS-sanctioned accounts that offer tax-advantages for educational saving and allow families to begin contributing to a child's college fund as soon as a baby is born. Such accounts grow tax-free and can receive contributions from parents, family members, and friends up to a certain dollar amount each year. All withdrawals used for qualified educational expenses are also exempt from federal income tax, and many states have begun waiving their taxes, as well.
South Carolina residents who are concerned about paying for college tuition in the decades to come should consider paying into Future Scholar, the state-sponsored South Carolina 529 college savings plan. This specific savings plan offers rewards regardless of household income and has several distinct advantages over many other states.
Perks of South Carolina's 529 Plan
South Carolina residents who contribute to the state's 529 plan receive an unlimited state income tax deduction. 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.
This unlimited feature is not the only reason South Carolina's 529 plan stands out from plans offered elsewhere: it also has a contribution deadline of April 15 for the previous year, which is a rare cutoff point among state-sponsored college savings plans. Most states require that contributions made to 529 plans be complete by December 31 in order to qualify for a state tax deduction.
How Much Is the Tax Deduction Worth?
The top South Carolina income tax rate is 7%, meaning that for each $1,000 contributed to the state-sponsored 529 plan can save a taxpayer up to $70 when filing their tax return.
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 a UTMA Custodial Account.
Future Scholar offers a calculator that can determine a given state's 529 tax benefits and compare it with out-of-state plans.
How to Claim the Tax Deduction
The South Carolina 529 plan is an "above the line" income adjustment. This means residents can claim it even if they don't itemize their other deductions, opting for the standard deduction instead. 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.
Consult a tax professional if you're unsure of how to submit 529 plan contributions or claim deductions.
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 South Carolina Future Scholar 529 plan website. In a state that makes favorable 529 plans available to its residents, the time is always right to start saving for college and making the most of state-sponsored tax benefits.