If you are thinking of setting up a college savings account for children or grandchildren, you should be aware that Minnesota taxpayers have the option of claiming either a tax credit or deduction for contributions to any state 529 plan. Only one tax benefit can be claimed in a given tax year. Minnesota taxpayers may:
• Deduct up to $3,000 for a married couple filing jointly or $1,500 for all other filers for contributions made to a qualified 529 account.
• Instead, may opt for a non-refundable tax credit of half contributions up to $500, subject to phase-out starting at a federal adjusted gross income of $75,000 (single filer). The credit is reduced by any withdrawals made by that taxpayer during the taxable year.
All prior year tax benefits are subject to recapture in the event of a nonqualified distribution.
Consult with your tax advisor on how this strategy might help you.
Source: Saving for College.com