It’s Not Too Late to Reduce Your 2019 State Income Taxes
As the cost of college education continues to rise, an increasingly large percentage of American families are making wise investments for the future. In total, approximately 29 percent of parents are now using some type of 529 college savings plan to help pay for a child’s higher education. However, not all 529 plans are created equal.
As a South Carolinian, you have access to the Future Scholar program, which – you’ll be happy to know – is one of the best state-sponsored plans in the country! It promises notable financial incentives and tax benefits – including one that only five other states offer. The only question is, will you take advantage of it?
Retroactive Contributions Mean It’s Never Too Late
One of the most appealing factors is the fact that plan contributors can take a state income tax deduction on 100 percent of contributions. But do you want to hear the best part? You’re allowed to make retroactive contributions to lower your prior year’s tax bill.
While more than 30 states, including the District of Columbia, offer some sort of state income tax deduction for qualifying 529 plan contributions, South Carolina is just one of six that allows families to claim a prior-year tax deduction up until the tax filing deadline. Georgia, Iowa, Mississippi, Oklahoma, and Wisconsin are the others.
There are two primary benefits to retroactive contributions:
More time to contribute.Rather than having to get all of your contributions in by December 31 – which is in the middle of the hectic holiday season – Future Scholar plan holders have an extra three and a half months to make final contributions. This additional time provides ample opportunity to invest in a child's education and future.
Strategic tax planning.Thanks to prior-year contributions, you have the ability to sit down with your accountant and/or financial advisor and review all pertinent information before making a decision about how much you want to contribute to a Future Scholar plan. This enables you to intelligently reduce your tax bill and maximize your earnings.
It’s important to note that you must contribute to a South Carolina 529 plan in order to qualify. Even if you’re a South Carolina resident and taxpayer, contributing to another state plan disqualifies you from the income deduction and prior-year giving opportunity.
How to Make Last Minute 529 Plan Contributions
This year’s tax deadline is July 15, 2020. If you’re reading this prior to the deadline, that means you still have an opportunity to make a last-minute contribution to a Future Scholar account and reap the rewards of a state income tax deduction. Here's what you need to do:
1. Enroll in Future Scholar
If you don’t already have a Future Scholar account, you’ll need to begin the enrollment process. But don’t worry – it’s quick and easy!
Enrolling in Future Scholar 529 simply requires basic information about the account owner (that’s you!), the designated beneficiary, and your initial contribution method. With this information handy, the enrollment process shouldn’t take more than a few minutes.
2. Make a Contribution
Once your account is set up, you can review the different investment choices and create a college savings portfolio that's right for you and your goals. This Pricing & Performance resource has some data to help you make an informed decision.
Before making any contributions, we recommend taking a look at the Program Description and familiarizing yourself with objectives, risks, and any applicable expenses.
3. Optimize Your Plan
Finally, you can optimize your plan to fit your investment needs. If you’re most comfortable making individual contributions, you can make a one-time payment. If you’re interested in automatic contributions, you can set up direct deposits to make recurring contributions on a weekly, monthly, or quarterly basis. Either way, don’t forget to select which tax year you want to apply your contribution to.
Get Started Today
The ability to make retroactive contributions means South Carolinians can breathe easy at the end of the year. However, don’t wait too long! With the July 15 deadline approaching, now’s the perfect time to open an account and invest in your loved one’s future!