Tax Benefits of South Carolina 529 College Savings Plan
If you live in South Carolina and are concerned about paying college tuition for a child one day, you may want to look into the state's 529 College Savings Plan. College may be years away for your child, but that won't stop you from worrying about how you can afford to finance it. South Carolina's 529 plan has rewards no matter your income. If you make a meager salary or belong to the top percent of income earners in the state, it has advantages.
The 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 is that South Carolina taxpayers can deduct any amount they contribute to an SC 529 plan, as long as they have income to deduct.
The unlimited feature is not the only reason South Carolina's college savings plan stands out. Another feature that makes it distinct is its April 15 contribution deadline for the previous year. This cutoff point is not found in most other states' college savings plans. Most other states require contributions to be made to 529 plans by Dec. 31 to qualify for the deduction.
How Much the Tax Deduction Is 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 states do. For instance, Michigan is an example of another state that doesn't offer deductions on these types of accounts.
How to Claim the Tax Deduction
Residents can claim the South Carolina 529 plan tax deduction on line 43 of their South Carolina SC 1040 Form. 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 phaseout on the South Carolina 529 plan tax 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, it can't hurt to begin your research now to make the most of your tax benefits before time runs out.