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We’re not entirely sure what motivated the Oregon State Legislature to make changes to the tax benefits associated with contributions to the Oregon College Savings Plan. But it did, and we consider the change to be another reason for those saving for college to consider carefully the value of this program.

In the past, contributions to the Oregon 529 Plan were deductible on your Oregon state income tax return, up to certain limits. In 2019, individual taxpayers were allowed to deduct up to $2,435 for contributions made to the Oregon College Savings Plan, while those filing jointly could deduct $4,865.

In 2020 and beyond, there will be an Oregon state income tax credit, instead of the deduction. Unfortunately, the income tax credit is capped at $150 for those filing single, and at $300 for joint filers. The tax credit becomes proportionately less beneficial as your income and contribution level goes up, as you can see on this table taken from the Oregon 529 plan website (please click on image to be taken to the source website):

So, if you’re a professional working couple with young kids for whom you’re saving for college, the tax benefit you receive has been reduced.

As an example, imagine Rob and Holly, who both work, have two young children, and have a combined adjusted gross income of $250,000. They contributed $10,000 to the Oregon 529 plan in 2019. The received a tax deduction of $4,865. If we assume that their Oregon State income tax rate is 10% (it’s actually a bit less than this), their 2019 contribution would have resulted in a tax benefit of $487. If Holly and Rob make that same $10,000 contribution in 2020, they will receive a maximum tax credit of $300. So, Rob and Holly just lost nearly $200 in tax benefits.

We’ve never been particularly fond of the Oregon College Savings Plan and this change makes the plan even less attractive. If you’re saving for college, we encourage you to consider other best-in-class education savings plans. You might read this article from Morningstar which identifies some of the plans.

Questions?
If you have any questions about saving for college, or which education savings plan might be right for you, feel free to give us a call on (888) 998-4796 or send an email to questions@springwaterwealth.com. We’d love to help!

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