Legislation was heard this week to provide a new tax subtraction and new tax credit for qualified contributions made to a Minnesota 529 College Savings Plan. This legislation provides tax breaks for families trying to save for future higher education expenses. It will also bring down the cost of student college loan debt.
- The average Minnesota graduate has $31,000 in student loan debt, the third highest in the nation.
- More than 70% of Minnesota graduates leave college with student loan debt, which is the fifth highest percentage of students nationally.
- The amount of the state match would be dependent on income level and investment.
- Minnesota is currently only one of five states not offering a tax incentive for 529 College Savings Plans.
Beginning with Tax Year 2015, this bill would allow up to $3,000 in contributions (or $1,500 if not filing married/joint) made to a Minnesota college savings plan to be deducted from federal taxable income. The contributions must be made to Minnesota’s 529 plan– amounts rolled over from other college savings plans would not qualify for the subtraction. This is important because people are not required to establish plans in the state in which they live; many Minnesotans do not have Minnesota plans.
The bill also creates a new tax credit of up to $500 for college savings plan contributions. While the tax subtraction is not limited by income, the credit is: those with lower incomes would be eligible for higher credits, with the credit completely phasing out for incomes over $160,000 a year. The credit is not refundable, but it is transferable – any unused portion of the credit is required to be deposited into the taxpayer’s college savings plan up to the $500 limitation. This is particularly valuable, especially to lower income earners who often don’t have any tax liability and, therefore, cannot take full advantage of credit’s worth.
Supporters argue that it is time we reinvest in our children’s futures with a sound investment in Minnesota’s 529 College Savings Plan. It provides incentives for families trying to save for future higher education expenses and it will bring down the cost of student college loan debt. (S.F. 293)