Alabama 529: Turning Silver Into Gold

Alabama’s 529 Plan recently received a “Silver” rating by Morningstar.  The Silver rating makes the plan rate in the Top 8 in the country!  That is a great rating, but you might be wondering why you shouldn’t just choose the Top “Gold” ranked plan?  If there is a better plan, would I not want my money in that one for my child?  If you live in Alabama, probably not.

Alabama residents are eligible to deduct State income tax up to $5,000 if filing single or $10,000 married filing jointly per tax year for total contributions.  Contributions to out-of-state plans are non-deductible.  If you are married and contribute the maximum to the Alabama 529, then you basically just got a $500 benefit.

Additionally, withdrawals from a qualified Alabama 529 plan are exempt from Alabama state income tax.  Withdrawals from an out-of-state plan have to be included on your state income tax.  If you have an out-of-state plan and have to withdraw a large sum for college expenses, then the state tax bill can add up.

If you already established an out-of-state plan, don’t worry! You can still take advantage of the Alabama 529 plan’s tax deductions by rolling over money from the out-of-state plans into the Alabama plan up to the limits. 

Although there are plans that rank ahead of the Alabama 529 plan, it most likely makes more sense to utilize the benefits of the Alabama plan if you are a resident.  If you ask me, that turns the Alabama plan for residents from Silver to Gold!


-Clay Wood

BCR Wealth

BCR Wealth

From retirement planning to asset management and protecting your family's financial future, BCR Wealth Strategies provides clear guidance and comprehensive support to help you verbalize and realize your financial objectives.