Michigan Education Trust offers tax deductions now
Robin Lott can readily cite statistics about the value of a college education, including the fact that the vast majority of people with bachelor’s degrees significantly out earn those with just high school diplomas during their careers.
As executive director of the Michigan Education Trust (MET), the 529 prepaid college tuition program administered by the Michigan Department of Treasury, she is also quick to tout the 529 plan’s tax advantages.
For example, as with all 529 plans, not only are withdrawals from MET not taxed by Michigan or the federal government when it comes time to pay qualified higher education expenses, but Michigan residents can also claim a state tax deduction on the sum of contributions they make toward a MET contract during a calendar year.
“Consider it a bit of a year-end stocking stuffer,” Lott advises, noting that MET contract holders must purchase tuition before Dec. 31 to qualify for the deduction on their 2018 state income tax return.
Consider this example: A family that buys $5,000 worth of MET tuition this year will receive a tax savings of $212.50 on their return due next April, based on the state’s 4.25 percent income tax rate.
‘Gift that lasts a lifetime’
Few people base their MET purchase solely on the opportunity to claim a tax deduction, Lott said. The main impetus is to lock in future college tuition at today’s prices, a sound strategy considering the steady surge in tuition costs and the volatility of the stock market she added.
That reasoning was echoed by Laurie and Ted Christesen, a Newaygo couple who used MET contracts to fund the college educations of their two children, Katie and Andrew.
The tax deduction was an added bonus, “especially when the [tax] refund arrived,” Laurie said.
Another tax tip, courtesy of Lott: Deductions are taken on Michigan tax form Schedule 1, Line 18.
Tax breaks aren’t the only reason to consider MET purchases in December.
Lott likes to call higher education “the gift that lasts a lifetime,” which is why she promotes MET prepaid tuition as an ideal alternative to the latest toy or gadget on children’s holiday wish lists.
“The benefits of a college savings account are going to last far, far longer than a child’s interest in the latest gizmo,” she said.
But, she notes, only contract holders – not gift givers who are merely contributing toward someone else’s MET account – qualify for the Michigan tax deduction.
To receive the deduction, gift buyers would have to purchase a separate MET contract themselves with the child as beneficiary.
Or friends and family could simply give cash directly to parents holding the MET account, and the parents in turn could buy additional tuition within the account they hold.
More information on the Michigan Education Trust, including its tax benefits, is available at SETwithMET.com or 800-MET-4-KID.