529 Plan Tax Savings Calculator

It’s tax time and the questions are flying. One that comes up regularly is, “What is the tax deduction for my state’s 529 plan really worth?” It’s not as straightforward as simply multiplying your marginal state tax rate by your contributions. Why? Because if you itemize on your federal return, your state taxes paid are deductible. So you will pay slightly more in federal taxes when you pay less in state taxes. The website savingforcollege.com has a calculator that shows the net tax savings. To get the most accurate result, you’ll need to know (or estimate) your federal taxable income. Keep in mind that the federal deduction for state taxes is the taxes paid, not the taxes due, so unless you adjust your state tax withholding to account for 529 plan contributions, the calculation might take a year to fully balance out.