The Montana 529 Plan Deduction for MT Residents

Rules for Claiming an Income Tax Deduction for Funding a Montana 529 Plan

Overview of the Montana 529 Plan Tax Deduction:

Montana residents contributing to a Montana 529 plan receive a state income tax deduction of up to $3,000 "per taxpayer" for each adult taxpayer. This means that even if a Montana resident contributes more than $3,000 on behalf of multiple beneficiaries (children), they are still only allowed to deduct a maximum of $3,000 on their return.

Couples filing jointly may deduct a combined maximum of $6,000 ($3,000 per taxpayer). Again, total contributions across all beneficiaries made above $6,000 are not deductible and may not be carried forward.

The Montana 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 Montana 529 plan tax deduction.

Value of the Montana 529 Plan Tax Deduction:

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

Considering that the top Montana income tax rate is 6.90%, a full deduction of $3,000 can save a taxpayer up to $207 at tax time. Currently, Montana 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 Montana 529 Plan Tax Deduction:

Residents can claim the Montana 529 plan tax deduction on line 20 of their Montana Schedule II.

Reference and Documentation:

Additional information on the Montana 529 plan tax deduction can be found on the Montana Department of the Revenue website and the official Montana college savings plan website.