Are 529 Contributions Tax Deductible in Virginia?

Saving for education can be expensive, but Virginia offers tax benefits to encourage families to invest in a 529 college savings plan. These plans allow contributions to grow tax-free when used for qualified expenses, and some states provide additional incentives through tax deductions or credits.

Understanding Virginia’s tax treatment of 529 contributions is essential for maximizing savings. This includes knowing whether contributions are deductible, any limits on deductions, and other key rules that impact tax filings.

State Deduction Eligibility

Virginia residents can deduct contributions to the state-sponsored Virginia529 plan from their state taxable income. This applies to Invest529 and CollegeAmerica, the two primary plans administered by Virginia529. Contributions to out-of-state 529 plans do not qualify.

Only the account owner can claim the deduction, meaning parents, grandparents, or other individuals who establish and fund an account benefit. The beneficiary’s relationship to the account owner does not affect eligibility, so extended family members or even unrelated individuals can contribute and receive tax benefits.

Virginia allows deductions on a per-taxpayer, per-account basis. Married couples filing jointly can each claim deductions if they own separate accounts. However, if both spouses contribute to the same account, the deduction is capped at the single taxpayer limit.

Annual Caps for Deductions

For the 2024 tax year, individuals can deduct up to $4,000 per account annually. Those with multiple accounts for different beneficiaries can claim a separate deduction for each.

If contributions exceed the $4,000 limit in a single year, the excess can be carried forward to future tax years. This benefits individuals making large lump-sum contributions, such as grandparents funding a grandchild’s education in advance.

Virginia does not impose income limits on eligibility for the deduction, allowing taxpayers at all income levels to benefit.

Carryforward Provisions

Virginia allows taxpayers to carry forward unused deductions indefinitely. This is particularly useful for those making large one-time contributions. By spreading the deduction across multiple years, taxpayers can maximize their tax benefits without exceeding the annual cap in a single year.

Unlike some states that impose time limits on carryforwards, Virginia allows taxpayers to use the deduction until the full amount is applied.

Rollovers from Other Plans

Virginia taxpayers can roll over funds from another state’s 529 plan into a Virginia529 account once per 12-month period for the same beneficiary. While this avoids federal tax consequences, Virginia does not allow a state tax deduction for rollover contributions.

Funds from a Coverdell Education Savings Account (ESA) can also be rolled into a Virginia529 plan. While both accounts offer tax-free growth for education expenses, 529 plans generally have higher contribution limits and broader usage, including K-12 tuition. To remain tax-free, the rollover must be completed within 60 days.

A provision under the SECURE 2.0 Act of 2022 allows beneficiaries to roll over up to $35,000 in unused 529 funds into a Roth IRA, starting in 2024. The 529 account must have been open for at least 15 years, and contributions made in the last five years are excluded.

Filing Requirements

To claim the Virginia529 tax deduction, taxpayers must report contributions on Virginia Form 760, the state’s individual income tax return, and list the deduction on Schedule ADJ. While proof of contributions is not required with the return, taxpayers should keep records such as account statements in case of an audit.

Only the account owner can claim the deduction. Contributions made by others, such as a grandparent contributing to a parent-owned account, do not qualify for a deduction on the contributor’s tax return. Additionally, rollovers from other 529 plans or Coverdell ESAs are not eligible for a state tax deduction.

To qualify for the deduction, contributions must be made by December 31 of the tax year. Virginia does not allow retroactive contributions to count toward the prior year’s tax return.