Last year, many states, including Arkansas and Wisconsin, introduced legislation to include K-12 tuition as a qualifying education expense for their 529 plans. As a result, contributions to plans in those states are deductible from a saver’s state income tax bill, up to a certain amount.
Other states, such as North Dakota and Georgia, have set up their college savings accounts to automatically conform to the federal law and so no legislation was needed.
“The movement in general across the states has been toward conforming to the federal law,” said Sharmila Mann, the director of policy at the Education Commission of the States, which has been tracking how states respond to the new code.
However, some states have resisted extending their tax perks to people who want to use the accounts before college.
Colorado, New York and Nebraska introduced legislation to expand their plans’ tax benefits to K-12 savers. All three bills failed.
Some states may be weary of giving out additional tax deductions and credits, said Mark Kantrowitz, the publisher of SavingForCollege.com. “It can be an unbudgeted decrease in state income tax revenue,” he said.
Other states might simply be putting off changing their existing tax code, said Elaine Griffin Rubin, senior contributor and communications specialist at Edvisors.
Despite the state of flux, the plans have never been so popular.