Minnesota Section 529 Plan Credit and Subtraction

The Minnesota legislature has passed two tax cuts for contributions to Section 529 Plans, which has created a nice tax planning opportunity.  The first is a credit of up to $500, and the second is a subtraction of up to $3,000.  Since the credit and subtraction are available to the individual who makes the contribution, this is a tremendous opportunity for parents and grandparents to coordinate their contributions.

For example: if the grandparents plan to contribute $2,000 to their grandchild’s 529 plan for 2017, they could contribute $1,000 and receive the $500 credit, and they could give the remaining $1,000 to their children to contribute to the same 529 plan, who would then also receive the $500 credit.

Of course, the credit is subject to income limitations, but the Subtraction is not.  Please contact us if you wish to take advantage of this tax planning opportunity, and see below for some of the details of the legislation.


Section 529 Plan Credit

  • Minnesota residents that contribute to a Section 529 College Savings Plan may be eligible for a nonrefundable credit up to $500.

  • The Section 529 Plan Credit is available beginning tax year 2017.

  • This credit is available to Minnesota residents and part-year residents who contribute to a qualified Section 529 College Savings Plan and meet certain income guidelines.

  • The credit is a maximum of $500 or 50% of contributions made during the year.

  • This credit phases out for taxpayers with an Adjusted Gross Income over $75,000. 


Section 529 Plan Subtraction

  • Individuals who contribute to a Section 529 College Savings Plan may be eligible for a subtraction from income up to $1,500 ($3,000 for married couples filing joint returns).

  • The Section 529 Plan subtraction is available beginning tax year 2017.

  • If you contribute to a Section 529 Plan, you may claim this subtraction. However, if you claim the Section 529 Plan Credit, you cannot claim the subtraction.

  • Many states offer 529 College Savings Plans. Contributions to a qualifying account are eligible regardless of which state administers the plan.

  • Taxpayers filing single, head of household, or married filing separate may qualify for a subtraction up to $1,500. Married couples filing joint returns may qualify for up to $3,000.