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