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Georgia Doubles Deduction for §529 Education Savings Plans

The Path2College 529 Plan, sponsored by the State of Georgia, is a tax-advantaged way for parents and other family members to save for college, offering both federal and state tax benefits. Contributions are not deductible on your federal tax return, but accumulated earnings are excluded from federal tax and may be withdrawn tax-free as long as the funds are used for qualified education expenses. Earnings are not taxed at the state level, either, and Georgia offers a generous deduction for contributions.

In fact, the Georgia state tax benefits for 529 plans just got better. The state tax deduction has been increased from $2,000 to $4,000 per year per beneficiary, for single taxpayers, and from $4,000 to $8,000 per year per beneficiary, for married couples filing jointly. Note that this increase takes effect in 2020 under Georgia HB 266, signed into law in May 2019.

Deadlines for Deductions

Deductible contributions may be made for a taxable year up until the federal deadline for IRA contributions. For example, you could make the deposit on April 14, 2021 and have the deduction apply to your 2020 return.

Rules on Withdrawals, Fund Limits

Tax-free withdrawals may be used for tuition, fees, certain room and board costs, books and supplies, as well as computers and related technology costs such as Internet access fees and printers. Up to $10,000 annually can be used toward K-12 school tuition per student from your 529 plan. Withdrawals used for other purposes may be subject to tax on the earnings, as well as a 10% penalty, so it is important to talk to your tax advisor before you decide to do anything else with the funds.

The maximum account balance per beneficiary for the Path2College 529 Plan is $235,000. Contributions beyond this amount are not permitted, but the fund can continue to accrue tax-free earnings. Also, there is no federal gift tax on contributions up to $15,000 per year for single filers and $30,000 for married filers.

Importantly, there are no income restrictions on either you, as the contributor, or on the beneficiaries of 529 plans. This flexibility means that these accounts should be considered as a key tax planning option for college funding for taxpayers at all income levels. Talk to your Frazier & Deeter tax advisor about how best to start your college savings plan.

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