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Level 2

Solved

Virginia 529 Deduction - Account Owner or Account Contributor?

Forum|Forum|4 years ago
August 9, 2021
3 replies
14 views

I have a Virginia Invest529 account set up for my daughter. I am the account owner. My daughter is the beneficiary.

If my brother makes a contribution to that account, does he get the Virginia state tax deduction as the contributor? Would I get it as the account owner? Or would there be no deduction?

I'm finding conflicting information.

In the "State tax deduction or credit for contributions:" section of this post, it indicate that the deduction would go to the account owner - https://www.savingforcollege.com/529-plans/virginia/invest529

However, looking at 58.1-322.03.7.a of the Virginia tax code (https://law.lis.virginia.gov/vacode/title58.1/chapter3/section58.1-322.03/) I saw this line:

"A deduction shall be allowed to the purchaser or contributor for the amount paid or contributed..."

But then, the code goes on to define a contributor as "a person who contributes money to a savings trust account established pursuant to this chapter on behalf of a qualified beneficiary and who is listed as the owner of the savings trust account." (https://law.lis.virginia.gov/vacode/23.1-700/)

So it does not look like my brother would be eligible to make a deduction on his taxes for a contribution to an account he does not own. He could set up an account with him as the owner and my daughter as the beneficiary to capture the deduction on his taxes.

But my question is what happens to the deduction if he makes a contribution to the account I set up?

Thanks for your help with this!

Not A Product Question

Best answer by SteamTrain

@Lot @DanPaul02 @Critter-3

According to the VA-529 FAQs, only the account owner can take the deduction. (Yes, presuming the VA529 plan people keep up with whatever the current VA tax rules are) :

"Can anyone make contributions to my account?

Yes! Anyone may contribute to your Virginia529 account, but only account owners may take the Virginia state income tax deduction for contributions."

________________________________________________

529 FAQs | Learn | Virginia529

DanPaul02

Level 8

Your brother can contribute to the 529 plan and claim the deduction. The person who contributes is the person who claims the deduction regardless of who owns the plan.

LotAuthor

Level 2

Thank you, @DanPaul02! Can you provide more details on how you came to this conclusion?

DanPaul02

Level 8

I have been doing income taxes for more than 40 years and have worked in many different states. In every state, the 529 contribution is claimed by the person who made the contribution. Reading the various laws can be quite confusing. Believe me, I have read all of them.

SteamTrainAnswer

Level 15

@Lot @DanPaul02 @Critter-3

According to the VA-529 FAQs, only the account owner can take the deduction. (Yes, presuming the VA529 plan people keep up with whatever the current VA tax rules are) :

"Can anyone make contributions to my account?

Yes! Anyone may contribute to your Virginia529 account, but only account owners may take the Virginia state income tax deduction for contributions."

________________________________________________

529 FAQs | Learn | Virginia529

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

Critter-3

Level 15

Ask the state if the beneficiary can only have one account ... or if they can have multiple accounts as a bene so you can open one in your name as the owner without having to put it into the already established account where there is another owner.

SteamTrain

Level 15

(Removed an inaccuracy)...see additional information received from user Lot, below

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

LotAuthor

Level 2

Thanks everyone for your input. I ended up calling the Virginia Department of Taxation customer service line (https://www.tax.virginia.gov/contact-us). The answer from the agent I talked with was that only the owner of the account may claim a deduction and only for contributions that they make.

If someone makes a contribution to an account they do not own, no one can take any deduction on that contribution.

In my scenario, my brother making a contribution to an account with my daughter of the beneficiary, for my brother to be able to get the deduction he would have to set up a new account with him as the owner and my daughter as the beneficiary.

CARSWSC

Level 2

I'm the account owner of three different Virginia 529 accounts. I have an account for each of my 3 sons. I've contributed $4K to two of the accounts and $2K to one account--$10K total in 2021. (I know the maximum that can be contributed to any one account is $4K and still be eligible for the full deduction.) . When I've entered this info into TurboTax, I'm only seeing a $6K deduction. I should be getting the full $10K deduction. Last year, when I had this problem, I called TurboTax and was given a work around. Prior to the 2020 tax season, I never had this problem. Can you provide the workaround to fix this or update your software?

FangxiaL

Level 10

Follow these steps to resolve your issue:

Within VA state return:

Click Edit next to Virginia529 Account Plan
On the next screen, select Yes, I've had one of these 529 plans
On the screen Tell Us About your Virginia529 or Prepaid Tuition Plan, check I made a payment or contribution in 2021
Continue to the screen Enter Your Account Info and Activity
Enter Owner, Plan Type, and 2021 Contribution separately by adding another account. Click Done