Are 529 Contributions Tax Deductible in Michigan?

529 plans are tax-advantaged savings vehicles specifically designed to help families save for future education expenses. While contributions to these plans are not deductible for federal income tax purposes, many states offer their own tax incentives in the form of deductions or credits. Michigan is one such state, providing a state income tax deduction for qualifying contributions to its sponsored 529 plans.

Michigan’s 529 Tax Deduction

Michigan taxpayers can benefit from a state income tax deduction when contributing to the Michigan Education Savings Program (MESP) or the Michigan 529 Advisor Plan (MAP). For individual filers, the maximum deduction limit for contributions is $5,000 per tax year. Married couples filing jointly can deduct up to $10,000 annually. This deduction applies specifically to the contributions made, not to any earnings accrued within the 529 account.

The deduction helps reduce a taxpayer’s Michigan adjusted gross income, potentially lowering their overall state tax liability. This state-level benefit complements the federal tax advantages, which include tax-deferred growth of earnings and tax-free withdrawals for qualified education expenses.

Specifics of Qualifying Contributions

The Michigan tax deduction for 529 plan contributions is available to Michigan taxpayers who make the contribution. This applies regardless of whether the contributor is the account owner or a third party, such as a grandparent. However, the taxpayer claiming the deduction must be a resident of Michigan.

Only direct cash contributions made to a Michigan-sponsored 529 plan are eligible for the deduction. Contributions to 529 plans sponsored by other states do not qualify for a Michigan income tax deduction. Furthermore, rollovers from other 529 plans, even if they originated from another state, are not deductible in Michigan. Contributions must be made within the tax year for which the deduction is being claimed to be eligible.

Reporting Your Deduction

Claiming the Michigan 529 tax deduction involves accurately reporting your contributions on your state income tax return. Taxpayers will use Michigan Form MI-1040, the state’s individual income tax return. The deductible amount is entered as a subtraction from federal adjusted gross income.

To complete this section of the tax form, taxpayers will need to refer to statements from their MESP or MI 529 Advisor Plan accounts. These statements provide the necessary records of contributions made during the tax year. While no specific tax form is issued for contributions, it is important to maintain these records in case they are requested by the Michigan Department of Treasury.