Leveling the Playing Field Among 529 Plans
Below is a MRR and PLR article in category Finance -> subcategory Taxes.
Leveling the Playing Field Among 529 Plans
Summary
While many are familiar with the benefits of state-sponsored 529 college savings programs, fewer may be aware of tax parity laws.
Article Body
Investing in state-sponsored 529 college savings programs comes with well-known advantages, but the concept of tax parity laws is less recognized. Traditionally, numerous states offer upfront tax deductions or credits only to residents who contribute to their own state-sponsored 529 plans. Until recently, no state offered a tax break for investing in out-of-state college savings plans.
This changed with Maine and later Kansas, which introduced tax parity laws. These laws allow residents to receive state tax deductions when investing in any 529 college savings program, whether in-state or out-of-state.
529 plans are a popular choice for saving for higher education, but comparing plans across different states can be confusing due to varying tax treatments. With the 2007 tax year, Kansas residents gained the ability to invest in any state’s 529 program while still enjoying tax benefits. Previously, such advantages were only available through Kansas’s own 529 Learning Quest plan, managed by Kansas State Treasurer Lynn Jenkins and American Century Investments.
Learning Quest is a nationally competitive and well-managed plan, but now Kansas residents can claim a tax deduction on contributions up to $3,000 per beneficiary (or $6,000 for married couples filing jointly) to any 529 plan that suits their goals.
Although many states have tried to pass similar parity legislation, these efforts often stall due to concerns about tax revenue loss or protecting local 529 programs. Despite this, Treasurer Jenkins successfully advocated for the Kansas legislation, offering residents greater choice and fostering competition in the 529 industry.
Tax parity laws are beneficial for families striving to meet rising college costs, as they encourage program managers to develop competitive plans, ultimately benefiting consumers by offering improved savings options.
Doug Lockwood is vice president of investor guidance for American Century Investments.
You can find the original non-AI version of this article here: Leveling the Playing Field Among 529 Plans.
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