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Maximizing Your Virginia 529 Plan Tax Deductions: A Wealth Advisor’s Take
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When it comes to saving for education, 529 plans offer valuable benefits—but depending on where you live, you could also unlock your Virginia 529 plan tax deductions.
In Virginia, residents can deduct up to $4,000 per year from their state income taxes for each 529 account, per account owner, per beneficiary. With Virginia’s top marginal income tax rate at 5.75%, that translates to a potential tax savings of $230 for every $4,000 deducted from your Virginia Adjusted Gross Income.
Even better, if you’re 70 or older, the $4,000 limit doesn’t apply—you can deduct your entire Virginia 529 contribution in a single year. (Of course, it’s always a good idea to check with your tax advisor to confirm how this applies to your situation.)
Under 70 and want to contribute more than the annual deductible amount? You’re not out of luck. Any contributions exceeding $4,000 can be carried forward and deducted in future years.
Here’s how to maximize your Virginia 529 plan tax deductions.
Multiple Accounts = Bigger Deductions
529s only allow one “account holder or owner”—meaning you can’t have a joint account—and married couples must have separate accounts to max out the deduction. Since Virginia applies the $4,000 deduction per account owner, per beneficiary, contributing to multiple accounts can actually increase your total deduction.
For example: if both parents open separate 529 accounts for the same child, they can deduct up to $8,000.
Enterprising parents seeking to maximize their state income tax deduction will sometimes set up 529 accounts for themselves as both the account owner and beneficiary—intending to later change the beneficiary to their children. Meanwhile, they’re also contributing to separate 529 accounts where their children are the named beneficiaries.
Here’s an example of how this can work:
Lyla and Kevin have two children, Tyson and Rory. To maximize their Virginia state tax deduction, they open a total of eight 529 accounts:
- Lyla opens one account for Tyson and one for Rory.
- Kevin opens one account for Tyson and one for Rory.
- Lyla opens an account with herself as the beneficiary, and Kevin does the same.
- Lyla and Kevin each open an account for the other spouse.
Since Virginia allows a $4,000 deduction per account, per beneficiary, this setup lets them deduct up to $32,000 in a given year—as long as they contribute at least $4,000 to each account.
Another nice perk of this scenario? An account owner can change the beneficiary of a 529 to another family member of the beneficiary without income taxes or penalties.
That said, before jumping into this strategy, be aware of potential gift tax implications. Changing beneficiaries later could trigger gift tax issues, and managing multiple accounts can be a logistical headache. For many families, keeping things simple is worth more than an extra tax deduction.
Virginia’s Unique “In and Out” 529 Strategy
Unlike some states, Virginia doesn’t require your money to sit in a 529 for a minimum period to qualify for the deduction. This means you can contribute to a 529, claim the deduction, and withdraw the money shortly after to pay for qualifying education expenses.
While this works, keep in mind that 529s are designed for long-term growth. The real benefit comes from tax-free compounding, so pulling the money out too soon could mean missing out on long term potential.
Lump Sum Gifting and Special Opportunities for Those Age 70+
529s have a special provision when it comes to gift taxes: you can lump five years’ worth of the annual exclusion amount of $19,000 into one single gift when made to a 529 ($95,000 for individuals or $190,000 for married couples) without needing to file a gift tax return.
For those over 70, you may benefit from the combination of lump-sum giving AND the ability to deduct the full contributions made to the 529 in a single year. This means you can reduce state income taxes on large, required minimum distributions from tax-deferred retirement accounts by making substantial contributions to the Virginia 529 plan. You may also reduce the money that will be in your estate (and potentially subject to estate taxes) at the end of your life.
For business owners retiring and facing a large taxable event, this can be a great way to reduce state income taxes while leaving a financial legacy for family members.
For those with concerns about overfunding a 529 beyond what a child will use for qualified education expenses, recently passed legislation allows for some 529 funds to be withdrawn tax and penalty free to make Roth IRA contributions for the beneficiary.
What if the Beneficiary Doesn’t Live in Virginia?
As long as you’re a Virginia resident contributing to Virginia’s 529 plan, you can claim the state tax deduction—regardless of where the beneficiary lives.
And no matter where the beneficiary resides, the funds can be used at any eligible school nationwide.
A Wealth Advisor’s Take Beyond 529’s
Maximizing your Virginia 529 tax deduction is a great financial move, but it’s just one part of your bigger financial picture. The real value comes from thoughtful, long-term planning—making sure your wealth is structured to reduce taxes, grow efficiently, and adapt to life’s ongoing changes.
If you’re ready to take a more strategic approach to your wealth, let’s talk.
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Heaven L. Goodwin, CFP®
Private Wealth Advisor
Heaven graduated Cum Laude from Georgetown, here in our nation’s capital, with a bachelor's degree in finance. Along with her studies, she also interned with Monument Wealth Management, where her love of financial planning really took root. Throughout the internship, she was able to see first-hand how the team collaborates to achieve wealth goals for clients. She loved the experience so much that she stayed on with Monument after college and was promoted twice: once to Paraplanner in 2019 and then again to Private Wealth Advisor in 2022.
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