Dear Liz: I am grandmother to two girls ages 10 and 14. I contribute to their Section 529 college funds and pay for expenses such as dental bills, dance lessons and so on. Is there a way I can deduct these contributions from my income tax?
Answer: Most states offer at least a partial tax deduction for 529 college plan contributions, said Mark Kantrowitz, publisher of the financial aid sites FinAid and FastWeb. The exceptions are California, Delaware, Hawaii, Kentucky, Massachusetts, Minnesota, New Hampshire, New Jersey and Tennessee, which have state income taxes but no deduction; and Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming, which don’t have state income taxes.
To get a deduction, you typically have to contribute to the plan offered by your home state rather than ones offered by other states. For more details, visit www.finaid.org/savings/state529deductions.phtml.
In general, you can’t take deductions for other expenses paid on behalf of your grandchildren. (If they’re your dependents — they live with you and you provide more than half their support — you could claim exemptions and possibly tax credits, but that doesn’t sound like the case here.) However, any medical or tuition expenses you pay directly on their behalf don’t count toward your annual gift tax exclusion, as discussed here last week.