Does Massachusetts Offer Tax Deductions for 529 Plans?

Massachusetts offers one 529 plan, which is an investment plan designed to help save funds for college expenses. You cannot claim a federal income tax deduction on contributions to a 529 plan, but some states allow you to claim a deduction on state income taxes. However, Massachusetts is one of the states that does not allow for a state income tax deduction on 529 contributions.

About 529 Plans

Each state in the United States offers at least one 529 plan. The sole Massachusetts 529 plan is called the U. Fund College Investing Plan, which is the type of 529 plan known as a college savings plan. Neither the account owner nor the beneficiary of an account needs to be a Massachusetts resident. Plan funds can be used at any accredited college or university in the U.S. Similarly, other states' college savings plans typically allow non-residents to open accounts, so Massachusetts residents can opt for different state's plans if they find them preferable.

State Income Tax Deductions

Massachusetts is one of just nine states that does not offer a state income tax deduction on contributions to provide an incentive to invest in the plans. Massachusetts does not allow deductions on contributions to either the U. Fund plan or any other state's 529 plan. Other states that do not offer state income tax deductions include California, Delaware, Hawaii, Kentucky, Minnesota, New Hampshire, New Jersey and Tennessee. In contrast, 34 states and Washington, D.C., do offer state income tax deductions. An additional seven states do not have a state income tax.

Other Tax Advantages

Although Massachusetts does not allow a deduction on contributions, a 529 plan provides a major tax benefit. Earnings in a 529 plan grow free of tax charges. When you withdraw earnings for eligible educational expenses, you do not pay state or federal income taxes on the withdrawal. Eligible expenses vary depending on the plan. For Massachusetts' U. Fund plan, eligible expenses include tuition, fees, room and board, books and other necessary expenses, which is typical for college savings plans. If you withdraw funds for non-qualifying expenses, then you have to pay income taxes on earnings and an additional 10-percent tax penalty.

Prepaid College Tuition Plan

Although Massachusetts does not offer a second 529 plan, it does offer the U. Plan Prepaid College Tuition Plan, which serves the same purpose as a prepaid tuition 529 plan. Participants buy tuition certificates that lock in tuition and mandatory fees at current rates. Earnings on the bonds that back the certificates are tax free. Prepaid tuition 529 plans typically have a limited group of participating schools, and the U. Plan can only be used at one of approximately 80 Massachusetts colleges or universities. Both state and non-state residents can participate. Contributions to the U. Plan are not eligible for tax deductions.

About the Author

Tom Gresham is a freelance writer and public relations specialist who has been writing professionally since 1999. His articles have appeared in "The Washington Post," "Virginia Magazine," "Vermont Magazine," "Adirondack Life" and the "Southern Arts Journal," among other publications. He graduated from the University of Virginia.

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