Tax Advantages and Information Additional Benefits of Saving in the NC 529 Plan
The earnings on your account in the NC 529 Plan are free from federal and, for
North Carolina residents, North Carolina income taxes, as long as your
college savings are used for Qualified Higher Education Expenses,
such as tuition, room and board, fees, and required equipment.
Tax Deduction for Contributions
There's an additional tax benefit for North Carolina taxpayers who
contribute to North Carolina's 529 Plan. State taxpayers contributing
to an account in the NC 529 Plan may be eligible for an annual state tax
deduction for contributions of up to $2,500 (individual) or $5,000 (married
couple, filing jointly), including rollovers from another state's 529 plan.*
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.
Potential Savings -- 2010 Tax Year
With $2,500 Contribution Reduced Tax Due
Head of Household2
$5,000 Limit Reduced Tax Due
Married Filing Jointly3
* 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.