Section 529 college savings plan (with Virginia state-tax deduction)
Tax-advantaged education savings. Federal tax-free growth for qualified expenses. Virginia offers one of the most generous state deductions in the country: $4,000 per account per year with unlimited carry-forward. SECURE 2.0 added a $35,000 lifetime rollover to a Roth IRA, eliminating the 'overfunded 529' trap.
A Section 529 qualified tuition program is a state-sponsored education-savings account. Contributions grow federally tax-free for qualified education expenses — college, registered apprenticeships, up to $10,000/year of K-12 tuition (post-Tax Cuts and Jobs Act), and up to $10,000 lifetime of student-loan repayment. Account owner retains control; beneficiary can be changed to another family member if plans change.
**For Virginia residents, the 529 deduction is one of the most under-claimed benefits in the state.** Va. Code § 58.1-322.03(7) allows up to **$4,000 per account per year** deduction from Virginia taxable income for contributions to a Virginia529 plan (Invest529, Prepaid529, CollegeAmerica). Excess contributions carry forward **with no expiration cap** — a $20,000 single-year contribution fully deducts over five years. Each investment option is a separate "account," so a family with three portfolios for one child can deduct $12,000/year. Virginians age 70+ can deduct the full contribution in one year with no cap.
**SECURE Act 2.0 § 126** (effective January 1, 2024) added a lifetime **$35,000 rollover to the beneficiary's Roth IRA**, subject to a 15-year account-age rule, a 5-year contribution lookback, the annual Roth IRA contribution limit, and the beneficiary's earned income. That ended the traditional "overfunded 529" trap where leftover funds faced 10% penalty plus income tax on non-qualified withdrawals.
**Medicaid-eligibility note**: In most states including Virginia, 529 assets owned by a parent for a child ARE countable resources for the parent's Medicaid application. For grandparent-owned 529s, the 2023 FAFSA Simplification Act removed the harsh penalty on grandparent distributions — a significant improvement.
Tagged 🟢 — opening a 529 is genuinely DIY (15 minutes online at Virginia529.com). Funding strategy and beneficiary changes may benefit from advisor review at larger balances.
State-specific notes
Tax-free growth for qualified education expenses under IRC § 529. SECURE 2.0 § 126 added the $35,000 lifetime 529-to-Roth rollover effective 2024. No federal deduction for contributions — the deduction is state-level only.
Va. Code § 58.1-322.03(7): $4,000 per account per year deduction with unlimited carry-forward of excess contributions. Age 70+ contributors can deduct the full contribution in one year. Must be a Virginia529 plan (Invest529, Prepaid529, CollegeAmerica, CollegeWealth) — out-of-state 529 contributions do not qualify for the Virginia deduction.
WV SMART529 plan contributions are deductible on the WV return — but only for WV SMART529 plans, not out-of-state 529s. WV's deduction does not have VA's unlimited carry-forward. Check the WV State Treasurer's office for current-year caps.
Alabama's 529 plan is CollegeCounts 529, administered by the Alabama State Treasurer under Ala. Code § 16-33C-1 et seq. Alabama allows an annual state income-tax deduction up to $5,000 per individual filer or $10,000 for married-filing-jointly when both spouses contribute, for contributions to Alabama-sponsored 529 plans only. **Unlike Virginia, Alabama's 529 deduction does NOT carry forward** — it is annual use-or-lose, so contributions must be postmarked or electronically submitted by December 31.