529 Tax

NC 529 Tax Deduction Goes A Long Way To Secure Your Child's Educational Future

Parents can reap the benefits of a NC 529 tax deduction by investing in a college savings plan for their child's educational future. The National College Savings Program allows a $5,000 NC 529 tax deduction each year for married couples who file jointly. Single filers receive a $2,500 NC 529 tax deduction.

The following information outlines the additional advantages and important rules regarding the tax deduction. You should discuss how the deduction applies to your specific circumstances with a tax, legal or financial advisor. The Parental Savings Trust Fund of the State Education Assistance Authority holds all of the assets of North Carolina's National College Savings Program. Many state forms will reference this Trust Fund.

In 2007, Money magazine named the North Carolina college savings plan a "top choice" for North Carolina residents because of the reasonable expense allowances and the NC 529 tax deduction.

In addition to the NC 529 tax deduction, account earnings are free from federal income taxes and North Carolina state income taxes if you are a resident. Withdrawals for qualified education expenses are exempt from both federal and North Carolina income taxes.

Withdrawals for amounts less than a scholarship or the cost of education at a U.S. military academy can be made without penalty if the beneficiary of the North Carolina 529 plan receives a scholarship or attends a U.S. military academy. However, the earnings portion is subject to federal income taxes for qualified withdrawals.

The National College Savings Plan offers 15 different investment alternatives to 529 account owners. The options vary from conservative to aggressive and include the NC Treasurer Dependable Income Fund, MetLife Protected Stock Fund, Wachovia/Evergreen Balanced Fund, NCM Capital Aggressive Stock Fund, and seven Vanguard individual investments. There are also aged-based options for a NC 529 tax deduction: two associated with the Seligman CollegeoHorizonFunds and three with Vanguard.

The NC 529 tax deduction and other tax advantages are generous when compared to other state tax benefits. Also, there is a five percent surrender charge if a withdrawal is made from the Protected Stock Fund as a result of the beneficiary's death, disability or receipt of a scholarship.

The college savings from your 529 plan will pay for tuition and expenses at practically any college or university in the United States or abroad. This gives the perspective that your NC 529 tax deduction goes a long way in terms of securing your child's education future.