What Are the Tax Advantages of the 529 MESP Plan?

The Michigan Education Savings Program (MESP) is the state’s direct-sold 529 plan, an investment account designed to help families save for future education costs. As a state-sponsored program under Section 529 of the Internal Revenue Code, it offers specific tax advantages. The MESP is open to any U.S. citizen or resident alien who is at least 18 years old, allowing parents, grandparents, or other relatives to open an account for a future student.

Tax Advantages of the Michigan Education Savings Program

The MESP offers a tax incentive at the state level for Michigan taxpayers. Account owners can deduct contributions from their Michigan taxable income each year. For the 2025 tax year, a single filer can deduct up to $5,000, while a married couple filing a joint return can deduct up to $10,000. The amount eligible for this deduction is the total contribution made during the tax year, less any qualified withdrawals taken in that same year.

In addition to the state deduction, the MESP provides two federal tax advantages. The first is tax-deferred growth, meaning investment earnings like interest or dividends are not subject to federal or state income tax as they accumulate. This allows the account’s value to compound more rapidly than in a taxable investment account.

The second federal benefit is that withdrawals for qualified education expenses are entirely tax-free. This means neither the original contributions nor the investment earnings are taxed by the federal government when the money is used for a permissible purpose.

Permissible Uses for MESP Funds

Funds from an MESP account must be used for federally defined qualified education expenses to remain tax-free. For higher education, this includes expenses at any accredited college, university, or vocational school. Qualified expenses cover tuition, mandatory fees, books, supplies, and required equipment, including computers and internet access used by the student.

Room and board costs are also a qualified expense if the student is enrolled at least half-time. The amount that can be withdrawn for housing and food is limited to the allowance included in the college’s official cost of attendance.

Federal law has expanded the uses for 529 funds beyond higher education. Other qualified expenses include:

• Up to $10,000 per beneficiary, per year, for tuition at a public, private, or religious K-12 school.
• Expenses for certain apprenticeship programs registered with the Department of Labor, including fees, books, and supplies.
• Repayment of qualified student loans, with a lifetime limit of $10,000 for the beneficiary and a separate $10,000 for each of the beneficiary’s siblings.

If funds are withdrawn for a non-qualified purpose, the earnings portion of the withdrawal is subject to federal and state income taxes. An additional 10% federal penalty tax is also applied to the earnings.

Preparing to Open an MESP Account

To open an MESP account, you will need the following information for both the account owner and the designated beneficiary:

• Full legal name
• Date of birth
• Social Security Number or Taxpayer Identification Number
• A physical address

When opening an account, you must select an investment strategy. The MESP offers several portfolio types, including age-based or enrollment-date portfolios. These automatically adjust their asset allocation over time, becoming more conservative as the beneficiary nears college age.

The plan also offers individual fund portfolios, which allow the account owner to build a custom investment mix from various single-fund options. This approach requires the account owner to monitor and rebalance the portfolio, and federal rules permit investment changes twice per calendar year.

Enrolling and Making Contributions

Enrollment is an online process available on the official MESP website. During the application, you will input the details for the account owner and beneficiary and select your investment portfolios. The minimum initial contribution to open an account is $25.

Once the account is established, contributions can be made through several methods:

• Recurring or one-time electronic bank transfers (EFT) from a checking or savings account.
• Payroll deduction, if offered by your employer.
• A gifting platform called Ugift, which allows friends and family to contribute using a unique code.
• Mailing a personal or cashier’s check with a contribution form to the plan’s processing center.