Tax Benefits of Louisiana's START Plan

This savings plan can help with your child's college education

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The Student Tuition Assistance and Revenue Trust (START) saving program is Louisiana's state-sponsored 529 savings plan. This plan can be a great way to save money for a child's college education. The 529 plans are authorized by the IRS and were designed to help families set funds aside for future college costs.

Louisiana is one of a few states that does offer some extra tax advantages on 529s. Louisiana residents who contribute on behalf of multiple children are entitled to multiple state tax deductions, up to the limit of $2,400 per child, provided that those funds are contributed and used for any accredited college or university (in or out-of-state) or state-approved proprietary (private career institutes) schools in Louisiana. Louisiana also has a separate program for K-12 savings called the START K-12 program.

Deduction Rules for LA START 529 Plan

In Louisiana, couples filing jointly may each claim the deduction separately, effectively doubling the amount that joint taxpayers can contribute and still receive the deduction. For example, if a married couple has three children, each parent may deduct contributions of up to $2,400 per child, for a possible total deduction of $14,400 (three children x $2,400 [maximum deduction] x two parents).

The Louisiana START 529 savings plan deduction is an "above the line" income adjustment, meaning residents can claim it even if they do not itemize their other deductions and opt for the standard deduction. Residents can claim the Louisiana START 529 tax deduction on Schedule E (using Code 09E) of their Louisiana Form IT-540.

Carryforward Provision in LA START 529

Unique to the Louisiana START 529 deduction is the existence of a "carryforward" provision.

How to Decide Whether to Contribute to the Louisiana START 529 Savings Plan

Louisiana residents trying to decide whether or not they should use the Louisiana START 529 savings plan versus other savings vehicles, need to account for the potential tax savings of their Louisiana state income tax deduction for contributing. Keep in mind that residents do not receive a Louisiana income tax deduction for contributing to any other state's Section 529 plan.

Considering that the top income tax bracket in Louisiana is 6 percent, each $2,400 contribution to the Louisiana START 529 savings plan may save a taxpayer up to $144 at tax time. While this is attractive, it still may not offset the benefits of using other non-deductible college savings accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account.

Another benefit of using the START plan is depending on your income level, the state of Louisiana will match up to 14 percent of deposits each year with earnings enhancements.

Federal Tax Advantages of 529 Plans

You may also be interested in federal tax advantages. Across the board, 529 plans are known for the advantage of growing tax-free. This means that you will not pay federal or state capital gains taxes. At the federal level, 529 contributions can also be involved in gift tax considerations and are subject to gift tax exemption limits.