Virginia 529: What Counts as a Unique Account for Per-Account Deductions?

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529 plans, or Qualified Tuition Programs as the federal government calls them, are specialized investment accounts to give tax-advantaged savings for education expenses. 529 plans are typically the best vehicle to save for college. Thanks to the 2018 Tax Cuts and Jobs Act, you can now also reimburse yourself up to $10,000 for elementary or secondary school tuition.

Contributions to a Virginia 529 plan offer the account owner a Virginia state tax deduction. Then, distributions to reimburse for any qualified education expenses are distributed both state and federal tax-free. For those under age 70, the deduction limit is $4,000 per account per year.

However, this raises the question: What counts as a unique account for the purpose of this “per account” limitation?

It was previously my conservative interpretation that one account was identified by unique account registration. In other words, each owner-beneficiary combination counts as its own account. However, when I was reading through the 2020 Virginia 529 Program Brochure recently, I discovered that Virginia actually has a very clear interpretation.

Oddly enough, what qualifies something as a unique account is both a unique account registration and investment portfolio selection. In other words, each unique owner-beneficiary-portfolio combination counts as its own account.

So John’s account for the benefit of Bill invested 100% in U.S. Stock is different from John’s account for the benefit of Bill invested 50% in Foreign Stock and 50% in U.S. Stock which is also different from John’s account for the benefit of Sally invested 100% in U.S. Stock.

As the 2020 Virginia 529 Program Brochure states (excerpts from across the brochure, blue emphasis added):

You may choose as many Portfolios as you wish. Each Portfolio you choose will be a separate Account.

Account” means the separate Invest529 account set up for each Portfolio by an Account Owner. Since each Account can have only one Portfolio, the same Account Owner may have multiple Accounts for the same Beneficiary in different Portfolios. Each investment by the same Account Owner will result in a separate Account as long as the Account Owner, the Beneficiary or the Portfolio is different. The same Account Owner may not establish multiple Accounts for the same Beneficiary in the same Portfolio.

The Account Owner may open multiple Accounts, selecting different Portfolios for the same Beneficiary, at the same time or in the future. Each different Portfolio will constitute a unique Account.

[To open an account,] Go online to a. Create a login/user profile if you don’t have a login/user profile already or don’t know your login b. Begin the application c. Select the Portfolio or Portfolios you wish to invest in. Remember that selecting multiple Portfolios will create a separate account for each Portfolio.

In this way, if a single mother wants to deduct the full amount of her $10,000 Virginia 529 contribution to her son’s 529 this year, she would need to open 3 separate accounts. To do this, she would need to select three different portfolios, meaning separate investment choices and asset allocations, for each of the three separate accounts all for the benefit of her son. This would increase her per year contribution deduction limit up to $12,000 ($4,000 for each of her 3 accounts) which is sufficient to deduct the full $10,000 of her contribution.

In this way, any family with children in private school should be able to take advantage of a Virginia 529 contribution deduction for up to $10,000 of their tuition expenses.

Photo by moren hsu on Unsplash

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Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. Her most popular post: The Complete Guide to Your Washing Machine