Family Education Savings Account (529 Plan) Deductions

A Family Education Savings Account (FESA), also known as a 529 plan or a qualified tuition plan, is a savings account set up to save for a student's qualified education expenses. Earnings in the account grow tax free and distributions aren't taxable when used to pay for qualified education expenses. Eligible contributions of up to $3,000 per individual taxpayer are deductible from federal taxable income to compute Montana taxable income.

Contact the Achieve Montana Program by calling (877) 486-9271 or by visiting AchieveMontana.com to set up a Montana FESA.

Montana Income Tax Deduction

Taxpayers can deduct eligible contributions to a Montana FESA or another state's 529 plan on their Montana income tax return. Beginning in 2026, House Bill 845 increased the maximum deduction to $4,500 ($9,000 for joint filers if both contribute or the contributions come from joint funds). After 2026, the maximums will increase based on inflation. 

The deduction is only available the year the contribution is made.

Contributions to a state's prepaid tuition plan do not qualify.

Eligibility

You may claim this deduction if:

  • you own the account,
  • your spouse owns the account, or
  • your child or stepchild owns the account and is a Montana resident.

Qualified Expenses

Qualified education expenses are defined in 26 U.S.C. 529 and include:

  • tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible postsecondary school,
  • expenses for special needs services needed by a special needs beneficiary in connection with enrollment or attendance at an eligible postsecondary school,
  • expenses for room and board for students who are enrolled at least half-time at an eligible postsecondary school,
  • computer or peripheral equipment, software, or internet access if it's used by the beneficiary while enrolled at an eligible postsecondary school,
  • fees, books, supplies, and equipment related to the participation in an eligible apprenticeship program certified with the U.S. Secretary of Labor,
  • up to $10,000 of principal or interest on a qualified student loan for a designated beneficiary or a designated beneficiary's sibling,
  • up to $10,000 of tuition for enrollment at an elementary or secondary (K-12) public, private, or religious school, or
  • qualified expenses related to professional credentials, certifications, and licenses allowed by federal law and regulations.

Recapture Tax

Unqualified withdrawals are subject to a recapture tax at the highest marginal Montana income tax rate on amounts that previously reduced a taxpayer's Montana taxable income. Unqualified withdrawals include those that are used to pay for items other than qualified education expenses, or a withdrawal from an account that hasn't been open for more than one year.

Contributing with Your Montana Refund

If you are due a Montana income tax refund, you may directly deposit all or a portion of your tax refund into a Montana FESA or another state's 529 plan.

You must already have an established Montana FESA or 529 plan. You cannot create a new Montana FESA or 529 account on your tax return.

Note: If you are filing a Montana Individual Income Tax return for the first time, you will not have this option. First-time filers in Montana will receive a paper check by mail and cannot have a refund direct deposited.

Resources and Related Laws