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
The Alabama tax deadline is December 31.
Can I still make a 529 college savings contribution for 2016?
Because it is past December 31, 2016, the answer is no. That was the last day you could open a new CollegeCounts 529 account or contribute to an existing account for the 2016 tax year. This is, however, an excellent time to get a jump on 2017.
How can I determine my 2016 contributions for Alabama Income Tax Deduction purposes?
Review any contributions you made in that calendar year. Your December 31, 2016, account statement includes year-to-date contributions, which totals all account contributions received during the calendar year. Here are several important points to consider:
- Your 4th Quarter 2016 statement provides the year-to-date contribution totals for your account. The “YTD Contributions” detail includes all contributions received and invested from January 1, 2016 through December 31, 2016. Please keep the following in mind as you determine the total amount you may be able to deduct on your Alabama state income tax return.
- If you mailed a contribution in late-December 2016 that was invested in January 2017 as a 2016 “Prior Year Contribution,” the contribution would not be on your 4th Quarter 2016 statement because it was not received prior to December 31. Any contributions with a 2016 postmark that were invested in 2017 as “Prior Year Contributions” will be on your 1st Quarter 2017 statement. You will need to add “Prior Year Contributions” for 2016 to the “YTD Contributions” total on your 4th Quarter 2016 statement for Alabama tax deduction purposes.
- You may also need to subtract any contributions that were invested in January 2016 for the previous tax year (2015) to determine the correct amount for your 2016 tax deduction. Any “Prior Year Contributions” for 2015 should be subtracted from the YTD total on your 4th Quarter 2016 statement. Similarly, if family members or friends made contributions to your account, you would also need to subtract those contributions—each contributor is eligible to take the Alabama income tax deduction for contributions they may have made.
- Keep in mind, a contributor does not have to be the Account Owner to take advantage of the deduction. Any family members or friends who are Alabama taxpayers can take the deduction for any contributions they may have made to your account.
- Rollovers: The “YTD Contributions” reported includes any out-of-state rollovers into CollegeCounts. If you rolled over an out-of-state 529 plan to CollegeCounts the rollover can be deductible for Alabama state income tax purposes.
Alabama Tax Forms: You will report contributions to CollegeCounts on your Alabama Department of Revenue 2016 Form 40 (Part II – Line 8) for state of Alabama tax deduction purposes.
Please don’t hesitate to contact us at (866) 529-2228 if you have questions in determining the amount of your 2016 contributions eligible for the Alabama income tax deduction.
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.