If you live in Massachusetts, and are currently utilizing a 529 plan for college savings, you should consider reviewing which plan you are using.
Effective January 1, 2017 through the 2021 tax year, contributions to Massachusetts 529 plans of up to $1,000 per year by an individual, and up to $2,000 per year by a married couple filing jointly, are deductible in computing Massachusetts taxable income.
The catch is you have to use the MA state sponsored plan. Luckily, this is a good plan managed by Fidelity its called the U.Fund). They have improved the plan over the years, including lowering fees on the investment options (through the Fidelity Index Funds available in the plan).
Prior to this change in tax law, we helped clients choose the right plan for them based on a number of factors. This becomes one of the factors in deciding the appropriate plan going forward. For our clients who are currently contributing to a 529 plan, we'll be reviewing if this is worth making a change. We will be in touch on this.
It is important to note that there is no impact on existing account balances, this is only relevant to new contributions that are made in 2017 and beyond. I also want to emphasize what this tax deduction really means. At about 5% MA state income tax, a $2,000 deduction amounts to $100. So, this isn't a major windfall. However, we'd rather have that $100 in your pocket than the state's.