With an Arkansas GIFT 529 account, your savings has the potential to grow at a faster rate than if you had invested in a comparable taxable account. The plan offers several tax advantages that can help you save more for education, including:
- A special AR tax deduction. Arkansas taxpayers can deduct up to $5,000 (up to $10,000 for married couples) of your Arkansas 529 GIFT Plan contributions from your Arkansas adjusted gross income.1
- Tax-free withdrawals. Withdrawals for qualified expenses are exempt from federal and state tax.2
- Gift-tax advantages. Contribute up to $15,000 (up to $30,000 for married couples) per designated beneficiary per year, without incurring federal gift tax consequences.
- Estate planning benefits. Contribute up to $75,000 per designated beneficiary in a single year (up to $150,000 for married couples) by taking advantage of five years’ worth of federal tax-free gifts at one time.3
- Additional AR taxpayer deduction. Contributions up to $3,000 per Arkansas taxpayer ($6,000 total per married couple) to a tax-deferred tuition savings program established by another state are deductible; provided that the taxpayer has not deducted the contribution in another state or on another state’s income tax return.
- Rollover contribution benefits. Rollover contributions up to $7,500 per Arkansas taxpayer ($15,000 total per married couple) into the Plan from a tax-deferred tuition savings program established by another state are deductible in the tax year in which such contribution was rolled over into the Plan.
Assumptions: $2,500 initial investment with subsequent monthly investments of $100 for a period of 18 years; annual rate of return on investment of 5% and no funds withdrawn during the time period specified; taxpayer is in the 30% federal income tax bracket for all options at the time of contributions and distribution. This hypothetical is for illustrative purposes only. It does not reflect an actual investment in any particular 529 plan or any taxes that may be payable upon distribution.
1Arkansas taxpayers can deduct up to $5,000 (up to $10,000 for married couples) of your Arkansas 529 GIFT Plan contributions from your Arkansas adjusted gross income with any unused excess contribution in a tax year being carried over to the next succeeding four tax years, beginning January 1, 2017.
2Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.
3The gift will be prorated over five years. In the event the donor does not survive the five-year period, a prorated amount will revert back to the donor's taxable estate.