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  • Writer's pictureStephen Boatman

Should NC Residents Use The NC 529 Plan?

Updated: Jun 5

There are two benefits to using a 529 plan. The first is that all investment earnings/capital gains within the account are tax-free if used for education expenses. This could save you money on taxes if you are in the 15% or higher capital gains tax bracket. See brackets below. Suppose you are in the 0% capital gains tax bracket. In that case, you receive the same benefit by investing in your normal individual investment account, assuming income stays at its current level and capital gains tax brackets don't change in the future. However, with the individual account, you have lower fees and aren't stuck using the funds for education expenses.

2024 capital gains tax rates

529 State Tax Deduction

The second benefit is that in some states, 529 plans allow you to receive a state tax deduction for all or a portion of your contributions. This may be especially beneficial for you in NY, where state tax rates are high and contributions are deductible. However, NC doesn't provide any state tax deduction for contributions to its 529 plan.

Which States Don't Provide A State Tax Deduction For 529 Contributions?

Only four states currently don't provide a 529 contribution state tax deduction, credit, or parity. Those states lacking a state tax benefit are California, Hawaii, Kentucky, and North Carolina. The image below shows if your state provides a tax benefit and what kind. I've also linked to the blog that goes into more detail regarding these tax benefits.

States with 529 tax benefit

If Not The NC 529 Plan, Then Which 529 Plan Do I Recommend?

When researching the best 529 plan, I start with Morningstar's ratings, which rank 529 plans nationwide into gold, silver, and bronze categories. Typically, 1-4 529 plans are in the gold category per year, and they cycle intermittently. In 2024, the two plans listed in the gold section are Utah's 529 plan and Pennsylvania's 529 plan. I would also advocate for Vanguard's 529 and Michigan's 529 plans. I recommend these plans because of their low fees, performance, and overall user experience.

Funding Your 529 Plan

Another planning tip I'll throw in here is that 529 plans typically save you the most money on the dollars that stay invested for the longest time. So, if you can front-load your 529 plan, you will typically save more on avoiding capital gains taxes. This is because it gives compounding interest more time to take effect, as seen in the Dynasty 529 plan example. The best strategy to increase tax savings within a 529 is to have the most capital gains possible. But since timing the market is difficult and you are limited to investing in the 529 funds available giving yourself more time is the next best strategy.


If you want to learn more about how I recommend saving for college, read my blog, Saving For College - 2024. As always, please talk with a financial advisor before making large financial decisions like saving for college and which 529 plan to use. Have a great week!

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