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The Virginia 529 Plan Deduction for VA Residents

Rules for Claiming the $4,000 Tax Deduction for Funding a VA 529 Plan

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Overview of the VA 529 Plan Tax Deduction:

Virginia residents who contribute to a Virginia 529 Plan can deduct up to $4,000 ($2,000 for 2008) from their state income tax return for each account they contribute to and are the owner of. This limit is lifted for taxpayers over 70 years of age.

Individuals filing a joint return can effectively double their limit by each separately contributing to a different account for the same child. Any amounts contributed in excess of the $4,000 annual limit may be carried forward and used in any future year.

Value of the VA 529 Plan Tax Deduction:

Virginia residents trying to decide whether to use a VA 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 Virginia income tax rate is 5.75%, each $4,000 contributed can save a taxpayer up to $230 at tax time.

Virginia 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 VA 529 Plan Tax Deduction:

Residents can claim the Virginia 529 plan tax deduction using code "104" on lines 8a-8c of their Virginia Form 760.

The Virginia 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 VA 529 Plan tax deduction.

Reference and Documentation:

Additional information on the Virginia 529 plan tax deduction can be found in the Virginia Form 760 instructions and the official Virginia 529 Plan website.

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