Student loan debt in the U.S. surpassed $1.6 trillion in 2020. As multiple generations of young Americans struggle against the burden of this debt, state governments are being forced to search 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 free of taxation 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.
Below is an overview of West Virginia's state-sponsored 529 college savings plan and the tax benefits available to contributors. In general, West Virginia residents who plan on supporting the college tuition of a child or loved one should learn about the state and federal tax-protections of a 529 plan, which can work together with loans and financial aid to make college a possibility for aspiring students. It's important to do this research long before a child is ready for college and to compare the benefits of different states, depending on where a student intends to study.
What to Expect From West Virginia's College Savings Plan
West Virginia's 529 plan is different from those available in many other states in that residents can deduct the entire amount of their contribution (up to the extent of their income) from their state taxes. Moreover, unused tax deductions from a large one-time contribution may be carried forward for a maximum of five years.
Students do not need to attend a traditional four-year university in order to benefit from the plan. According to the West Virginia State Treasurer's office, funds from the state's 529 plans can be used to finance higher education at vocational and technical schools, culinary schools, worker-retraining classes, community colleges, and many other institutions.
West Virginia 529 accounts max out at $400,000, so one individual can't receive any more contributions once their balance across 529 accounts reaches $400,000.
West Virginia residents can contribute up to $15,000 per year ($30,000 for married couples filing jointly) to any beneficiary's 529 plan. This can be increased to $75,000 ($150,000 for married couples filing jointly) once every five years (essentially you can put in five years' worth at once and carry it forward.
What the West Virginia 529 Plan Tax Deduction Is Worth
West Virginia residents debating whether or not to use their state's 529 plan need to account for the potential tax savings of contributing to their in-state plan.
Considering that the top West Virginia income tax rate is 6.5%, each $1,000 contributed can save a taxpayer up to $65 on their tax return. West Virginia 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.
Consult with a tax advisor or a similar professional before signing up for a 529 plan to ensure maximum earning potential and flexibility over the life of the investment.
Claiming the Tax Deduction
Residents can claim the West Virginia 529 plan tax deduction on their West Virginia Schedule M. The West Virginia deduction is an "above the line" adjustment to gross income, meaning residents can claim it even if they do not itemize their other deductions (opting for the standard deduction, in other words). Many states allow for this. Also, there is no income phaseout on the West Virginia 529 plan tax deduction.
Disbursements taken out for qualified educational expenses are nontaxable. These qualified expenses include tuition, room and board, books, supplies, and other school-related equipment. If you withdraw any money for nonqualified expenses, you will have to report this as income on West Virginia Schedule M and it will be subject to normal income taxes.