Wisconsin 529 limits

[Ian74]

I have an odd situation that may impact 529 deduction limits. Both of my kids have three legal parents through another state's legal process that Wisconsin is required to recognize. One of my kids is biologically connected to me and because of a divorce I can clearly only deduct $1,690. I am the third, non-biological, parent to my other kid and he wasn't included as a child of the marriage in the divorce proceedings. Can I deduct $3,380? I will contribute the same amount to both accounts I am just wondering what I can deduct from state taxes.

[MaryK4]

Yes, you can deduct for beneficiaries that are not your biological children.

If you are a Wisconsin taxpayer, your contributions to college savings accounts may be deducted from state taxable income up to a maximum of $3,380 per beneficiary ($1,690 per beneficiary for married filing separate status and for divorced parents of a beneficiary) for the 2021 tax year.  You do not have to be related to the beneficiary and remember, this tax benefit is per beneficiary so if you’re contributing to accounts for multiple children or grandchildren, you can potentially reduce your Wisconsin taxable income even more. Contributions must be made by the state tax deadline which is generally April 15 of the following year.  See Tax Advantages and  DOR College Savings Accounts.  

[Edited 3/1/22 I 10:20 pm PST]

[Ian74]

I appreciate the feedback. I suppose the question is connected to the statement "divorced parents of a beneficiary" that only allows the lower amount. I am a legal parent of my second kid and divorced from one of his biological parents so I am concerned that it would be interpreted to be the lower amount. 

[ErnieS0]

You deduction is based on your Wisconsin income tax filing status. If you are filing as married filing separately in Wisconsin, your deduction for all your children is limited to $1,690 per beneficiary.

[Ian74]

I would be considered single for my filing status since my divorce is final. That doesn't seem to match the language that only $1690 is allowed in situations with divorced parents.

[KrisD15 · Accepted solution]

"I am the third, non-biological, parent to my other kid"

"and he wasn't included as a child of the marriage in the divorce proceedings."

No, I do not think you are limited to the 1,690 for divorced parents.

If the child was not part of a divorce, you would not be considered that child's divorced parent. 

I cannot figure the logic of limiting a divorced parent's contribution, but there it is.  Perhaps to discourage parents from moving taxable income to the child's account simply as a tax shelter. 

"The 2021 annual subtraction for contributions to a Wisconsin college savings account is $3,380 ($1,690 if married filing separate or a divorced parent). This limitation applies to the person who makes a contribution to the account. A beneficiary may have multiple contributions made to their account for the year and the total of all contributions may exceed $3,380."

LINK

[Ian74]

I really appreciate the input. I do suspect that the limit is to keep divorced parents from benefiting more from a tax shelter then non divorced parents. It is a bit silly when you consider the ability to contribute to any other beneficiary to the full amount.

While I am a parent and I am divorced from one of the biological parents, I agree with the logic that if my youngest child wasn't considered a child of the marriage in the divorce proceedings then he wouldn't be limited in the contribution amount. Obviously my contributions will be equal to both children but I am glad to take the added tax benefit since it is possible. 

[AmyC]

The instructions for form SB Education subtractions are on page 5.I recommend you review it as it goes through the filing status and income requirements.