Tax Benefits for D.C. Residents Using a Section 529 Plan :
The District of Columbia provides a substantial tax write-off for residents who contribute to the D.C. College Savings Plan. For 2008, this deduction is capped at $3,000 per individual. A joint deduction of $6,000 is permitted for married couples as long as each spouse is the owner of a separate account.Increasing the attractiveness of the D.C. College Savings Plan is the fact that a resident does not need to itemize their other deductions to claim this benefit. In other words, if you are not able to deduct anything else, you are still be able to deduct your contributions to the plan from your gross income.
As with most states, distributions from the D.C. College Savings Plan that are not used for qualified education expenses are subject to taxation, and also a possible “recapture” of deductions taken in previous years.
Value of the D.C. Section 529 Tax Deduction:
If you are a D.C. resident trying to choose between the D.C. College Savings Plan and other savings vehicles, you need to account for the potential savings of the income tax deduction for D.C. residents. Remember, District of Columbia residents only receive a deduction for contributing to the District of Columbia’s Section 529 plan, not for plans from other states.Considering that the top income tax bracket for D.C. residents is 8.50%, a joint contribution of $6,000 could potentially save $510 at tax time. In other words, receiving the deduction could be similar to a 8.50% bonus on the amount contributed.
