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The PA 529 Plan Deduction for Pennsylvania Residents

Rules for Claiming the $13,000 Income Tax Deduction for Funding a PA 529 Plan


Overview of the PA 529 Plan Tax Deduction:

Pennsylvania residents who contribute to a PA 529 plan receive a state income tax deduction of up to $13,000 "per beneficiary" in 2009 ($12,000 in 2008). If a couple files a joint tax return, the allowable deduction is doubled to $26,000 per return as long as both spouses each have earned income of at least $13,000.

This means that if a Pennsylvania taxpayer contributes $13,000 on behalf of ten different beneficiaries, they could potentially deduct $130,000 (10 children x $13,000 per child).

Value of the PA 529 Plan Tax Deduction:

Unlike most states, Pennsylvania residents receive a tax deduction for contributing to any state's Section 529 plan. In other words, if they decide against using Pennsylvania's 529 plan, and instead use another state's plan, they'll still receive the deduction.

Pennsylvania does not currently offer a tax deduction to residents contributing to other types of college savings accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account.

Pennsylvania residents trying to decide whether to use a Section 529 plan versus these other types of college accounts, need to factor in the potential tax savings of contributing to a Section 529 plan. Considering that Pennsylvania has a flat state income tax rate is 3.07%, each deduction of $13,000 can save a taxpayer up to $399.10 at tax time.

Claiming the PA 529 Plan Tax Deduction:

Residents can claim the Pennsylvania 529 plan tax deduction on their PA-40 Schedule O Form.

Reference and Documentation:

Additional information on the Pennsylvania 529 plan tax deduction can be found on the Pennsylvania Department of Revenue's website and the official PA 529 Network website.

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