Back in early 2020, we wrote about the changes that the Oregon State Legislature made to the tax benefits associated with contributions to the Oregon College Savings Plan. Those changes – described below – made a relatively disappointing program even less attractive.
Until 2020, contributions to the Oregon 529 Plan were deductible on your Oregon state income tax return, up to certain limits. For example, 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.
But since 2020, that tax deduction has been replaced with an Oregon state income tax credit. 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 significantly 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.
Now, fast forward to today. If Holly and Rob make that same $10,000 contribution in 2022, 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 made the plan even less attractive. If you’re saving for college, we encourage you to consider other best-in-class education savings plans.
Did you know that 529 college savings plans are administered at the state level, and that many states offer more than one plan? That means there are literally dozens of plans to choose from! How do you go about selecting a great one for your college savings?
We’ve put together a helpful, informative and easy-to-read guide to picking a great 529 plan.
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 firstname.lastname@example.org. We’d love to help!
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