Tax Advantages and Information
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Tax-Free Earnings Tax Deduction for Contributions Whether you are the owner of an account in the NC 529 Plan or simply making a contribution for a child who is the beneficiary of an NC 529 Account, as long as you are a North Carolina taxpayer, you may be eligible for this tax deduction on your contribution. Examples of the benefit of the North Carolina income tax deduction to North Carolina taxpayers contributing to the NC 529 Plan have been provided by Holly K. Nicholson, CFP. |
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* The features of a qualified tuition program are complex and involve significant tax issues. The availability of tax benefits may be contingent on meeting other requirements. You should consult your own financial, tax or other advisor to learn about how the North Carolina taxpayer deduction may apply to your specific circumstances.
North Carolina income tax forms may refer to contributions made to an account in the "Parental Savings Trust Fund" of the State Education Assistance Authority. This is the Trust Fund that holds all the assets of North Carolina's National College Savings Program, the NC 529 Plan.
Tax Related to Withdrawals
Withdrawals for Qualified Higher Education Expenses are exempt from both NC and federal
income taxes. Should a Withdrawal be made for reasons other than Qualified Higher Education
Expenses, the earnings portion of the Withdrawal is subject to federal income tax and
a 10% federal penalty tax, as well as state and local income taxes.
If your Beneficiary receives a scholarship or appointment to a U.S. military academy, as long as you withdraw no more than the amount of the scholarship or cost of the academy education from you NC 529 Account, there will not be the 10% federal penalty tax; however, the earnings portion of this type of Withdrawal is subject to federal, and possibly state, income taxes.
Withdrawals are not allowed from the Protected Stock Fund except in the case of a Beneficiary's death, disability or receipt of scholarship. If a Withdrawal is made in one of these three cases, it is subject to a 5% surrender charge.
See the Program Description for more information on Withdrawals and tax implications.
If you are not a resident of North Carolina, you may wish to consult an advisor in your state for information on your state's exemptions.
Used for examples in Potential Savings chart:
| Income Brackets | Tax Rate | |||
|---|---|---|---|---|
| 1 Single Filer | 0 - $12,750 | 6.00% | ||
| $12,750 - $60,000 | $765 + 7% on amount over $12,750 | |||
| $60,000 plus | $4,072.50 + 7.75% on amount over $60,000 | |||
| 2 Head of Household | 0 - $17,000 | 6.00% | ||
| $17,000 - $80,000 | $1,020 + 7% on amount over $17,000 | |||
| $80,000 plus | $5,430 + 7.75% on amount over $80,000 | |||
| 3 Married Filing Jointly | 0 - $21,250 | 6.00% | ||
| $21,250 - $100,000 | $1,275 + 7% on amount over $21,250 | |||
| $100,000 plus | $6,787 + 7.75% on amount over $100,000 | |||
