Overview of the Rhode Island 529 Plan Tax Deduction:
Rhode Island residents who contribute to a RI 529 Plan receive a state income tax deduction of up to $500 "per taxpayer." If a couple files a joint tax return, the possible deduction is doubled to $1,000 per return.This means that if a Rhode Island couple filing a joint return contributes more than $1,000 on behalf of eligible beneficiaries (children), they are still only allowed to deduct a maximum of $1,000 on their tax return in that tax year. However, Rhode Island does offer a unlimited carryforward provision, which allows contributions not previously deducted to be used in a later year, as long as that year's annual deduction limit has not been met by new contributions.
Value of the Rhode Island 529 Plan Tax Deduction:
Rhode Island residents trying to decide whether to use a RI 529 plan versus another state's Section 529 plan, need to account for the potential tax savings of contributing to their in-state plan. Considering that the top Rhode Island income tax rate is 9.90%, each deduction of $500 can save a taxpayer up to $45.50 at tax time.Rhode Island does not currently offer a tax deduction to residents contributing to out-of-state plans or other types of college savings accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account.
Claiming the Rhode Island 529 Plan Tax Deduction:
Residents can claim the Rhode Island 529 plan tax deduction on line 24(f) of their Rhode Island Schedule I.The Rhode Island 529 Plan tax 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 RI 529 Plan tax deduction.
