Indiana 529: How Long Does Money Need to be in the Account Before You Get the Tax Credit?

I can't seem to find the answer to this question anywhere online. What is the minimum amount of time that $4,000 needs to reside in Indiana's CollegeChoice 529 Plan to be eligible for the $1,000 tax credit? For example, can I deposit $4,000 in our 529 in mid-March 2019 and then take it out to pay tuition in early August 2019 and still earn the $1000 state tax credit for 2019? Thanks for the guidance!

Mike

Hi Mike!

Great question!

Everyone knows that saving for post-high school educational expenses is a wise decision. Some of us, however, could benefit from a little help to reach our goals. A number of states offer a state income tax deduction or credit for their residents who make contributions to the state-sponsored 529 plan. This type of extra incentive gives the act of saving for college an immediate impact on your current financial situation while encouraging you to prepare for your child’s future.

As you noted, Indiana does offer a state income tax credit of 20% for each dollar contributed up to $5,000. In your case, your $4,000 contribution would entitle you to an Indiana tax credit of $800. If you do the math, that $4,000 contribution only cost you $3,200. That’s a good deal. Thanks, Indiana!

How long does your contribution need to stay in the account in order for you to be able to claim the credit? I think the answer may surprise you. Now, before I go any further, I want to make sure each reader understands that I’m giving information on the Indiana plan only. If you have the same question and contribute to another state’s 529, I encourage you to contact them directly and ask. So, what’s the answer?

7 days.

Yep. One measly week is as long as the money needs to sit in the account. Why 7 days? That’s how long it will take for the checks to clear and the money to be available for you to use. There isn’t any other deposit-related requirement for you to be able to access the money in your account and be eligible for the tax credit. You’re in good shape, Mike.

To the rest of you Indiana residents, if you’re getting ready to write a tuition check and think you’ve missed your opportunity to make a 529 contribution to get the state tax credit, think again (probably). It’s rarely too late for you to be able to open an account, make a contribution, and then use the money for tuition shortly thereafter.

But, why wait and cut it close? You’re reading this now, and you know you should do something, so why don’t you head over to your state’s 529 website and open an account and/or make a contribution? Go ahead. It’ll be the best 5-15 minutes you spend all day and you can tell your kid you did something to help them go to college when you get home tonight.

One additional thought… If you like reading our blog posts and listening to the podcast, check out our private group on Facebook, The RePeters. We want our group members to ask questions, leave comments, encourage one another, and give us feedback. We’ll share our blog posts and podcasts through the group, too, so you’re always up to date with the latest. If you’re not already a member, come check us out!