CollegeCounts offers tax advantages for college savers

Save with great tax benefits

When you invest with the CollegeCounts 529 Fund, you benefit from multiple tax advantages that could help you accumulate more dollars for college. For additional information see the Tax Q&A.

 

Each year, Alabama taxpayers can deduct contributions made to CollegeCounts up to:1

  • $5,000 single filers
  • $10,000 married, filing jointly when both spouses contribute
  • December 31 contribution deadline

Contributions and any earnings grow in the plan with no federal or state income taxes deducted each year, providing the potential for additional investment growth.

Withdrawals used to pay for qualified higher education expenses (as defined in Section 529 of the Internal Revenue Code) are free from federal and Alabama state income tax2.

Qualified higher education expenses include:

– tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a Designated Beneficiary at an eligible educational institution;

– expenses for room and board (with certain limitations) incurred by the Designated Beneficiary who are enrolled at least half-time;

– expenses for the purchase of computer or peripheral equipment, computer software, or Internet access and related services, if such equipment, software, or services are to be used primarily by the Designated Beneficiary during any of the years the Designated Beneficiary is enrolled at an eligible educational institution;

– expenses for special needs services in the case of a special needs beneficiary which are incurred in connection with such enrollment or attendance;

– expenses for fees, books, supplies, and equipment required for the participation of a Designated Beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act;

– up to a lifetime maximum of $10,000 paid as principal or interest on any qualified education loan of the Designated Beneficiary or a sibling of the Designated Beneficiary. A sibling includes a brother, sister, stepbrother, or stepsister. For purposes of the $10,000 limitation, amounts treated as a qualified higher education expense with respect to the loans of a sibling of the Designated Beneficiary are taken into account for the sibling and not for the Designated Beneficiary.

– up to a maximum of $10,000 per year in tuition expenses, incurred by a Designated Beneficiary, in connection with enrollment or attendance at an eligible elementary or secondary public, private or religious school.

Note: 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.

Contributions to an account are considered a gift from the contributor to the designated beneficiary and are generally excludible from the account owner’s taxable estate. Amounts in an account at the death of the beneficiary are includible in the designated beneficiary’s estate.

An account owner’s contributions to an account are eligible for the annual gift tax exclusion, which is currently $17,000 per donee. 529 plans also allow for a special gift tax exclusion election. In general, this rule allows you to contribute up to $85,000 for each beneficiary in a single year without federal gift tax consequences—provided that you make no other gifts to the beneficiary in the same year or in any of the succeeding four calendar years. This election needs to be made on a federal gift tax return. Under this rule your contributions are subject to being added back into your taxable estate in the event of your death within the five-year period. You should consult your tax advisor regarding your situation.

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 generally free from federal and Alabama state income tax. 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.