If your goal is to save for college, a 529 plan is the smart way to go.
Account income grows without federal and state taxes, and the account beneficiary (your child, grandchild, a friend’s child, or even you) can use the money tax-free for the fees. tuition, room and board and fees.
All states (except Wyoming) and the District of Columbia offer a 529 plan. Over 30 states and Washington also offer an income tax credit or deduction for contributions to a 529 account.
Many plans require you to make your contributions by December 31 to claim a deduction for the year, although some give you until the tax filing deadline.
The maximum amount you (and your spouse, if you are filing jointly) can deduct varies by state. For example, according to Savingforcollege.com. In Pennsylvania, the limits are $ 15,000 for individuals and $ 30,000 for couples filing jointly.
Some states have additional incentives for residents to save.
In total, 15 states offer matching contributions or other financial incentives to residents who invest in their 529 plans. For example, Colorado’s CollegeInvest 529 plan will match contributions up to $ 500 per year for five years, as long as the beneficiary is 8 or younger when parents enroll and the adjusted gross family income is 400. % or less of federal poverty. level ($ 106,000 for a family of four).