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.

Alabama Income Tax Deduction (up to $10,000)1

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

What is the deadline to contribute to take advantage of the Alabama state income tax deduction?

Contributions may be completed online or mailed. Contributions that are mailed must be postmarked to CollegeCounts no later than December 31, 2018 to be eligible for a 2018 deduction. Electronic contributions must be completed by 11:59pm Central Time on December 31 to be considered a 2018 contribution.

Any contribution made after 3:00pm Central Time on Monday, December 31 but before 11:59pm Central Time on December 31 will post to your account on January 2, 2019, but will be coded a “Prior Year Contribution” and generally should be eligible for the 2018 state income tax deduction.

Contributions addressed to CollegeCounts and postmarked in 2018 but received in 2019, will be invested on the day the check is received – will be coded as a “Prior Year Contribution” and will be considered a 2018 contribution for tax deduction purposes.

Tax-Deferred Growth

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.

Tax-Free Withdrawals

Withdrawals for qualified higher education expenses are free from federal tax.2 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. Withdrawals for nonqualified expenses may be subject to state and federal taxes as well as an additional 10 percent federal tax penalty.

Gift and Estate Tax Treatment

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 $15,000 per donee. 529 plans also allow for a special gift tax exclusion election. In general, this rule allows you to contribute up to $75,000 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 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.