Utah 529 Tax Deduction: What to Know About the Credit

A 529 plan is a savings account designed to help families set aside funds for future education costs. Authorized under Section 529 of the Internal Revenue Code, these plans offer federal tax advantages, allowing contributions to grow tax-deferred and qualified withdrawals to be tax-free. In addition to these federal benefits, Utah provides a nonrefundable tax credit for contributions to its official state plan. This credit directly reduces a taxpayer’s state tax liability.

Eligibility for the Utah Tax Credit

To qualify for the Utah tax credit, contributions must be made specifically to my529, which is the state’s official and only qualifying 529 plan. Investments in 529 plans sponsored by other states are not eligible for this state tax benefit, even if the contributor or beneficiary is a Utah resident. The my529 plan is a direct-sold plan, meaning individuals can open and manage their accounts directly without going through a financial advisor.

Only the account owner is eligible to claim the Utah state income tax credit. While anyone, such as a grandparent, relative, or friend, can make a contribution to a child’s my529 account, the tax credit for those contributions benefits the account owner on their Utah state income tax return.

There are no residency requirements for the beneficiary of the my529 account. The Utah taxpayer who owns the account can qualify for the credit as long as the contribution is made for a named beneficiary with a valid Social Security or Taxpayer Identification Number. This structure allows Utah taxpayers to save for beneficiaries living in any state.

Calculating Your Tax Credit

The Utah tax credit is calculated as a percentage of the contributions made to a my529 account during the tax year. For the 2025 tax year, the credit is 4.50% of the contributed amount. The credit is capped based on maximum contribution levels that vary by the taxpayer’s filing status, and these maximums are applied on a per-beneficiary basis.

For 2025, an individual filing as single, a corporation, or a trust can claim the credit on contributions up to $2,490 per beneficiary. For those who are married and filing a joint tax return, the maximum eligible contribution amount doubles to $4,980 per beneficiary. For example, a married couple filing jointly who contributes $5,000 to one beneficiary’s account would calculate their credit on the maximum of $4,980, resulting in a state tax credit of $224.10.

If a taxpayer contributes more than the maximum eligible amount in a single year, the excess contribution can be carried forward for up to five years. A taxpayer can apply the unused amount to subsequent tax years, claiming a credit on that portion until the full contribution has been used or the five-year period expires. For instance, if a single filer contributes $3,000 in one year, they would claim a credit on $2,490 that year and could carry forward the remaining $510 to claim a credit in the following tax year.

The tax credit itself is nonrefundable and cannot be carried forward. If the calculated credit is more than your total tax liability for the year, you cannot apply the excess credit to a future tax year.

Claiming the Credit on Your Tax Return

To claim the credit, taxpayers must complete specific forms as part of their Utah state income tax filing. The credit is calculated and reported on Schedule TC-40A, Income Tax Schedule, which accompanies the main Utah State Individual Income Tax Return, Form TC-40.

On Schedule TC-40A, filers must enter the total amount of their qualifying contributions for the year, up to the legal limit for their filing status, and then calculate the resulting credit amount. The calculated credit from this schedule is then transferred to the main TC-40 form, where it reduces the total amount of state tax owed.

Tax Implications of Withdrawals

The tax benefits of a 529 plan are contingent on how the funds are ultimately used. Withdrawals are categorized as either qualified or non-qualified, each with distinct tax consequences. Qualified withdrawals, those used for approved education expenses like tuition, fees, books, and certain room and board costs, are free from both federal and Utah state income tax.

The primary state-level tax issue arises with non-qualified withdrawals. If money is taken out of a my529 account for any reason other than a qualified education expense, the state of Utah requires a “recapture” of any tax credits that were previously claimed on those specific contributions. This means the taxpayer must add back the amount of the credit they received to their state tax liability in the year the non-qualified withdrawal is made.

This state tax recapture is a separate consequence from federal penalties. On the federal level, the earnings portion of a non-qualified withdrawal is subject to ordinary income tax plus a 10% penalty. Therefore, a Utah taxpayer making a non-qualified withdrawal faces a dual tax impact: repaying the state tax credits they benefited from and paying federal income tax and penalties on the investment gains.