Learn the Basics of the Maine 529 Tax Deduction for Local Residents
Rules for Claiming a Maine State Income Deduction for Funding a 529 Savings Plan
Maine residents who contribute to any state's Section 529 plan used to receive a state income tax deduction of up to $250 per beneficiary per tax return. Maine residents were entitled to multiple deductions up to the limit of $250 per child when they contributed on behalf of multiple beneficiaries—the children or dependents who will be using the funds to attend school and pursue further education.
Now here's the bad news: This deduction was eliminated from Maine's tax code effective January 1, 2016. But if you made contributions prior to this date, you can still claim them if you haven't already done so by filing an amended return for that year.
The Deduction for Married Couples Who File Jointly
Unfortunately, couples who file joint married tax returns don't receive separate deductions. In other words, if a couple contributes more than $250 for any one beneficiary, they're still limited to the single $250 deduction for that beneficiary on their state income tax returns. They don't get one deduction for each spouse for a total of $500. The deduction is based on each beneficiary, not each contributor to the plan.
The Deduction Is an "Adjustment to Income"
The Maine 529 savings plan deduction is an "above the line" deduction, what's referred to as an adjustment to income. This is particularly advantageous. It means residents can claim the deduction even if they elect not to itemize their other deductions but use the standard deduction instead. It also affects their AGIs or adjusted gross incomes, and eligibility for several other tax benefits can depend on this number.
There Are Income Limitations
Here's an example of how your AGI can affect eligibility. This deduction is limited to individuals with federal adjusted gross incomes of less than $100,000, or $200,000 for couples filing jointly. If your AGI is more than this, you don't qualify.
The Value of the Maine 529 Savings Plan Tax Deduction
It's important to weigh all the benefits of contributing to this savings plan. Maine residents who are trying to decide whether they should use a Section 529 savings plan versus other types of savings vehicles should account for the potential tax savings on their Maine state income tax deduction for contributions. Maine does not offer a tax deduction for contributing to other college savings accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account.
The top income tax bracket in Maine is 7.15 percent as of 2017, so each $250 contribution to a Section 529 savings plan can save a taxpayer up to $17.87 at tax time.
And, of course, all growth and earnings on money invested in the plan is tax-free at both the state and the federal level, provided the withdrawals are used for qualified educational purposes.
You can begin a 529 plan with a contribution of as little as $250. Subsequent contributions must be at least $50.