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.

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 up to $3,000 ($6,000 if married filing jointly and both spouses separately made contributions) of eligible contributions to a Montana FESA or another state's 529 plan on their Montana income tax return. 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, or
  • up to $10,000 of tuition for enrollment at an elementary or secondary (K-12) public, private, or religious school.

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