Like other 529 plans you get a state tax income deduction for contributions to a 529 education account.
Here are the rules:
Taxpayers may deduct from individual Virginia taxable income contributions of up to $4,000 per account per year made to a Virginia529 account. If you contribute more than $4,000 to an account in one year, you may deduct up to $4,000 per year until you have claimed all of your contributions.
Virginia Taxes income greater than $17,000 at a 5.75% rate.
This means if your family taxable income is $150,000 then your state income tax liability will be approximately $7,648.
If the VA 529 operated like a traditional 529 if you made a $25,000 contribution for your child that would reduce your taxable income to $4,000, or $8,000 if you did an account for each spouse.
This means your state tax deduction value is worth ~$461.
You would use up $8,000 of your $25,000 contribution and roll forward the remaining $17,000 into future years until exhausted.
This is how most people will manage their VA 529.
But there is a better way.
Notice in the rules that it says per account.
This is key.
In the VA 529 each investment fund is ITS OWN account.
This means that you can create many investment fund accounts and put $4,000 into each to get a deduction for each. Let’s model it.
To the right you will see 3 of the investment options inside the VA 529. All are very similar investments. ~100% equity, high correlation.
By having each spouse open three accounts like the example above and putting $4,000 into each, that would be $24,000 in state taxable income reduction for the same $25,000 contribution.
In our example above that would mean instead of ~$461 in tax reduction you would get ~$1,381 in state tax reduction.
