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The Michigan 529 Plan Deduction for MI Residents

Rules for Claiming a State Income Tax Deduction for Funding a Michigan 529 Plan

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Overview of the Michigan 529 Plan Tax Deduction:

Michigan residents contributing to a Michigan 529 plan receive a state income tax deduction of up to $5,000 "per tax return" for each adult filer. This means that even if a Michigan resident contributes large amounts on behalf of multiple beneficiaries (children), they are only allowed to deduct a maximum of $5,000 on their return. Any amount contributed over the limit is not deductible and may not be carried forward.

Couples filing jointly may deduct a combined maximum of $10,000. Again, total contributions across all beneficiaries made above $10,000 are not deductible and may not be carried forward.

The Michigan 529 plan deduction is an "above the line" income adjustment, meaning residents can claim it even if they do not itemize their other deductions (opting for the standard deduction). There is no income phaseout on the Michigan 529 plan tax deduction.

Value of the Michigan 529 Plan Tax Deduction:

Michigan residents trying to decide whether to use the Michigan 529 plan versus another state's 529 plan need to account for the potential tax savings of contributing to their in-state plan. Michigan does not offer a tax deduction to residents contributing to out-of-state plans.

Considering that Michigan has a flat income tax rate of 4.35%, the full deduction of $5,000 can save a taxpayer up to $217.50 at tax time. Currently, Michigan does not offer a tax deduction for contributing to other types of college savings accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account.

Claiming the Michigan 529 Plan Tax Deduction:

Residents can claim the Michigan 529 plan tax deduction on line 17 of their Michigan MI-1040 Form.

Reference and Documentation:

Additional information on the Michigan 529 plan tax deduction can be found on the Michigan Department of the Treasury website and the official Michigan 529 Plan website.

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