The Louisiana START 529 Tax Deduction for LA Residents

Rules for Claiming the Louisiana START 529 Savings Plan Income Tax Deduction

Overview of the Louisiana START 529 Income Tax Deduction:

Louisiana residents contributing to the state's START 529 savings plan receive a state income tax deduction of $2,400 per beneficiary. If a Louisiana resident contributes on behalf of multiple beneficiaries (children), they are entitled to multiple deductions, up to the limit of $2,400 per child.

Couples filing jointly may each claim the deduction separately, effectively doubling the amount 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 (3 children x $2,400 maximum deduction x 2 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 (opting for the standard deduction).

 

The Louisiana START 529 Carryforward Provision

Unique to the Louisiana START 529 deduction is the existence of a "carryforward" provision. According to a Revenue Bulletin released by the Louisiana Department of Revenue, an active START 529 account holder who does not contribute enough to take the full deduction in one year, may carryforward the unused amount to subsequent years.

For example, a single individual who only contributes and deducts $2,000 (out of their $2,400 annual limit) may carry forward the remaining $400 into the next year, raising their deduction limit to $2,800 ($2,400 + $400).

 

Value of the Louisiana START 529 Savings Plan Tax Deduction:

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.

Remember, 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 6.00%, 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.

 

Claiming the Louisiana START 529 Savings Plan Tax Deduction:

Residents can claim the Louisiana START 529 tax deduction on Schedule E (using Code 09E) of their Louisiana Form IT-540.

 

Reference and Documentation:

Additional information on the Louisiana START 529 tax deduction can be found on the Louisiana Department of Revenue's website and the official Louisiana START 529 Savings Plan website.