Liz Weston

Dear Liz: The state where I live, Oregon, has removed the tax deduction for 529 college savings accounts. This was quite disturbing to discover upon getting my taxes done this year. Other than the obvious savings benefit, are these accounts still worth having? Fortunately our son is almost done with college, so it won’t affect us much, but I am thinking of my two granddaughters.

Answer: Although there’s no federal tax deduction for 529 contributions, most states offer some kind of tax break or other incentive to contribute to their college savings plans. Oregon now offers a tax credit capped at $150 for single filers or $300 for married couples that doesn’t benefit higher earners as much as the previous deduction.

(Some states have no income tax and thus no deductions for 529s, while a few — California, Delaware, Hawaii, Kentucky, Maine, New Jersey and North Carolina — have a state income tax but no 529 tax break.)

College savings plans still allow your money to grow tax-deferred and to be used tax-free for your children’s education. That can be a big benefit for higher-income families, especially when they have young children. (The longer the money has to grow, the bigger the potential tax advantage.)

Grandparents may have additional reasons to contribute. Starting this year, money in a grandparent-owned 529 is completely ignored by federal financial aid formulas. (Although money in a parent-owned 529 has always received favorable financial aid treatment, distributions from a grandparent-owned 529 in the past were heavily penalized.)

So yes, 529 plans are still worthwhile for higher earners — and you’re not limited to your own state’s plan. If you’re not getting a tax incentive to stay home, you have many great options. Morningstar annually updates its list of the best 529 plans and last year singled out Illinois’ Bright Start College Savings, Michigan’s Education Savings Program and Utah’s My529 for top honors.