State tax law revision allows more contributions to college savings accounts

Whether due to the economy, government budget constraints or a particular administration’s agenda, advantageous tax laws continue to change, become limited or grow obsolete.

This, coupled with the fact that college tuition is escalating, means future college-bound students can ill afford to put off saving for their education. Accordingly, it only seems prudent for current and recent Wisconsin residents to start saving early and take full advantage of the subtraction being offered by the state of Wisconsin.

The Wisconsin legislature recently enacted a number of changes to the state’s tax laws, one of them being the subtraction for contributions to a Wisconsin College Savings Account or tuition expense program, a.k.a. EdVest or “tomorrow’s scholar.” Effective July 1, 2011, the owner of such an account may authorize a parent, grandparent, great-grandparent, aunt or uncle of the beneficiary to purchase tuition units or contribute to the account. Additionally, effective for taxable years beginning on or after Jan. 1, 2011, a subtraction of up to $3,000 of contributions to the account may be claimed by any of the aforementioned relatives of the beneficiary if the beneficiary is the claimant, the claimant’s child, the claimant’s grandchild/great-grandchild, or the claimant’s niece/nephew. The subtraction is reported on the contributor’s Wisconsin income tax return and is an incentive for these relatives of the beneficiary to contribute and increase the beneficiary’s college fund.

Furthermore, it is worth noting that only contributions to Wisconsin state-sponsored plans, EdVest or “tomorrow’s scholar” qualify for the subtraction by Wisconsin residents. The amount allowable as a subtraction will be prorated for nonresidents and part-year residents based on the ratio of Wisconsin income to federal income. Additionally, the subtraction is up to $3,000 per beneficiary, per year, per tax return. In the case of a couple filing a joint return, the $3,000 limitation applies to them as a couple. Hence, if married filing separately, each contributor would subtract $1,500. Moreover, for Wisconsin residents, accumulated earnings are generally tax-free for federal and Wisconsin returns (state income taxes may apply for non-Wisconsin residents). When the time comes, the funds in the account can be used to pay for tuition, fees, books, room and board.

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