What are the federal and state tax advantages of opening an Oregon College Savings Plan account?
The benefit of contributing to an Oregon College Savings Plan account is that your account earnings have the opportunity to grow tax-free and so long as the money in your account is used for qualified expenses it can be withdrawn and spent tax-free, as well.
There is also an Oregon income tax benefit. If you are a resident of Oregon, contributions made to your account are deductible up to a certain limit (which is adjusted every year to account for inflation). For 2018, individual taxpayers are allowed to deduct $2,435 ($4,865 if filing jointly) for contributions made to any account in the Oregon College Savings Plan, so long as contributions are made prior to filing your state tax return that year. Remember, a tax deduction does not directly reduce your taxes owed (that’s known as a tax credit). A tax deduction simply reduces your taxable income, which reduces your overall tax liability.
Note: Recapture provisions apply. This means that if you withdrew funds for non-qualified expenses from your Oregon College Savings Plan account and you claimed a tax benefit for that year’s contribution, the state of Oregon will recapture any Oregon State income tax benefits that you had accrued on the principal portion of that withdrawal. Read through our Plan Disclosure Booklet (PDF) for more info.
Note, any funds that you plan to roll over from another 529 College Savings Plan are considered “new contributions” and will count towards the limit you’re allowed to deduct in a given tax year. It’s best to contact a tax advisor if you’re still unsure about what your tax implications might be.