Until this year, the state of Colorado was one of the very few in the Union that allowed an unlimited state tax deduction for contributions to their sponsored 529 plan. Unfortunately, residents in Colorful Colorado are now subject to limitations on said tax deductibility. As of January 1, 2022, Coloradans are only allowed to deduct a limit of 20,000 dollars on their state tax return for single filers and $30,000 for joint filers.
The new limit is now in effect will be indexed to inflation so it will rise over time if inflation, as measured by CPI, does so.
In some respects, this was too good to be true, the benefit too large to stay around forever. Seizing the opportunity to extract more in tax revenue in a very unsuspecting way, this measure is expected to bring in $137 million dollars in new revenue for Colorado.
Does this change anything for families looking to tackle the enormous financial burden that higher education takes on us all? No, it does not. The 529 college savings plans are still one of the best investment structures in existence today from a variety of perspectives. So don’t abandon your funding of these accounts – it’s still very much worth the effort.
As always, please let us know if you need any assistance navigating 529 plans or your overall college savings strategy.