Will I pay tax if I use a 529 plan for K-12 tuition?

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Q. I live in New Jersey and work in New York so I file tax returns for both states. I also have a NY Saves 529 plan for my kids’ college expenses. If I would like to open another 529 account in a state which does conform to the federal law with regards to K-12 tuition, will I have to report it on my New York tax return when I use it for K-12 expenses and will I have to pay taxes to New York on the earnings?
— Parent

A. We’re glad to hear you’re saving for college.

NY Saves accounts are New York State-sponsored 529 college savings plans.

The primary benefit of a 529 plan is the funds grow tax free, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

He said if the funds are used for tuition, room and board, books and fees, the funds are never taxed.

“If you have to file a New York income tax return, you can also deduct the funds you put into the plan,” he said. “New Jersey does not allow a tax deduction for funds deposited into a 529 plan. New Jersey does not tax funds withdrawn if used for college purposes.”

If you open a 529 Plan in a state where you do not have to file an income tax return, you obviously do not get a tax deduction, Kiely said. But when the funds are withdrawn, they are withdrawn tax-free if the money is used for college purposes or for grades K-12.

“When you withdraw funds from a 529 plan for K-12 or college purposes the money is not reported on your federal or any state income tax return,” he said.

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This story was originally published on Sept. 15, 2022.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.