Tax Season may not be the most exciting holiday. No fireworks, no barbecues, no exchanging of gifts. But it is a season of opportunity—especially if you’ve got little ones running around the house.
If you’ve already received your tax refund, don’t spend it all in one place! That new slow cooker or those limited-edition sneakers might be tempting, but now is the perfect time to make a contribution to your child’s CollegeCounts 529 account. If you haven’t opened an account yet, this could be the perfect way to kick one off.
If your tax return was underwhelming—or you’re procrastinating on filing your taxes—then it’s time to start thinking ahead.
Investing regularly in your children’s CollegeCounts accounts can yield a number of tax advantages for contributors and account owners. Here are some of the tax benefits to consider when investing with the CollegeCounts 529 Fund.
Alabama Income Tax Deduction
Contributions from parents, grandparents, or any other Alabama taxpayer come with an added bonus in the form of an Alabama state income tax deduction.
Individual filers can deduct up to $5,000 of contributions to CollegeCounts in a calendar year. If you’re a married couple filing jointly (with both spouses contributing), you can deduct up to $10,000 per year from your Alabama taxable income1.
No matter how much you invest, any earnings in your CollegeCounts 529 account will grow free from federal and state income tax. This means the potential for additional investment growth for your account.
Your account’s tax advantages aren’t limited to contributions—when it comes time to withdraw your student’s CollegeCounts 529 dollars for college, you’ll enjoy no federal tax on withdrawals for qualified higher education expenses2.
And don’t forget, these “qualified expenses” include a lot more than just tuition costs. You can also use your CollegeCounts dollars on books, supplies, equipment required for enrollment, computers and computer equipment, fees, even certain room and board expenses (as long as your student is enrolled at least half-time) and more.
If you’ve been putting off opening a CollegeCounts 529 account for your children, or you’ve not been contributing as much as you could be, let this Tax Season be a reminder that CollegeCounts offers a number of tax benefits to investors.
Learn more about the tax advantages that come with a CollegeCounts 529 account and be sure to discuss any questions you have with your tax professional for their advice and guidance.
1Individuals who file an Alabama state income tax return are eligible to deduct for Alabama state income tax purposes up to $5,000 per tax year ($10,000 for married taxpayers filing jointly if both actually contribute) for total combined contributions to the Plan and other State of Alabama 529 programs. The contributions made to such qualifying plans are deductible on the tax return of the contributing taxpayer for the tax year in which the contributions are made. In the event of a Nonqualified Withdrawal from the Plan, for Alabama state income tax purposes, an amount must be added back to the income of the contributing taxpayer in an amount of the Nonqualified Withdrawal plus ten (10%) percent of such amount withdrawn. Such amount will be added back to the income of the contributing taxpayer in the tax year that the Nonqualified Withdrawal was distributed. Please consult with your tax professional.
2Withdrawals used to pay for qualified higher education expenses are free from federal and Alabama state income tax. Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance; certain room and board expenses incurred by students who are enrolled at least half-time; the purchase of computer or peripheral equipment, computer software, or Internet access and related services if used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution; and certain expenses for special needs services needed by a special needs beneficiary. The earnings portion of a non-qualified withdrawal is subject to federal income tax and 10% federal penalty tax. In addition, Alabama provides in the event of a non-qualified withdrawal an amount that must be added back to the income of the contributing taxpayer. The amount to be added back will be the amount of the non-qualified withdrawal plus 10% of the amount withdrawn.