Tax Change for Wisconsin Residents

An excerpt about the WI 529 Plan from Investment Management at

529 plans like Tomorrow’s Scholar offer multiple tax incentives. Although contributions are not deductible on your federal tax return, earnings grow tax-free, withdrawals are tax-exempt, and generous contributions are free from estate tax accounting—as long as the account is used for educational expenses.

Federal Tax Advantages

  • Any growth or earnings in your account is tax-exempt if used for education
  • Withdrawals for qualified educational expenses are free from tax
  • The only tax reporting required is upon withdrawals (Form 1099-Q)
  • The current tax benefits of 529 plans were made permanent by the Pension Protection Act of 2006
  • Tax-deferred growth could allow you to save $22,000 more than a taxable account during the accumulation phase
  • Estate and Gift Tax Benefits

  • Any donor can contribute up to $14,000 per year per beneficiary without gift tax consequences
  • You can contribute, as an alternative, a lump sum of up to $70,000 ($140,000 for married couples filing jointly) every five years free from gift taxes
  • 529s are a great way for grandparents and other family members to create an educational legacy for a child while sheltering assets from estate tax
  • State Tax Incentives for Wisconsin Residents

  • Reduce from Wisconsin taxable income up to $3,050 of annual contributions for each beneficiary account (adjusted annually for inflation)**
  • The reduction is available to anyone who makes contributions during the tax year, regardless of whether they are the account owner or their relationship to the beneficiary
  • Contributions may be made for the tax year up to April 15th of the following year
  • Contributions that exceed the maximum reduction amount for a tax year may be carried forward to reduce future taxable income
  • Qualified earnings are free from Wisconsin state tax
  • Qualified withdrawals are free from state income tax

The projected values assume an initial lump sum of $10,000 is invested and $150 is invested each month thereafter for 18 years at a hypothetical compound annual growth rate of 7%, accrued monthly. At a 28% tax bracket, after 18 years, the investment would grow to $77,172 in a taxable account compared with $99,584 in a tax-deferred account. No consideration is given for state or local taxes.

The amount of an outgoing rollover made to another state’s 529 Plan on or after June 1, 2014, however, will be added to Wisconsin income and taxed to the extent that the amount was previously claimed as a reduction. Effective June 1, 2014, non-qualified withdrawals of contributions made after 2013 will be added to Wisconsin income and taxed to the extent the receipt of such amounts results in the additional 10% tax for federal tax purposes.



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