529 plans are formally known as Qualified Tuition Programs (QTP) and come in two flavors: pre-paid tuition plans and savings plans. 529 accounts in MaxiFi are designed to model the QTP savings plans, not the pre-paid tuition plans.
While contributions to 529 accounts are not tax deductible on federal income tax returns, they may be deductible on state income tax returns. We assume that contributions to a 529 account are made to the plan in the state of primary residence. If that state allows the deductions, we will incorporate the limits and rules for that deduction when calculating state taxes.
Earnings in 529 accounts grow tax-free and will not be taxed when you make qualified withdrawals. Qualified withdrawals are withdrawals made to pay for qualified educational expenses, such as tuition, fees, books, and supplies. Room and board for students who are enrolled at least half time is also considered a qualified expense. Typically, 529 accounts are used for funding college expenses but they may also be used for private elementary and high school expenses up to a certain limit. You can learn more about QTPs and qualified expenses in IRS publication 970, chapter 8.
Because MaxiFi only allows for entry of qualified educational expenses, we exclude all 529 earnings from state and federal taxes. If you have planned educational expenses that are not considered qualified, enter them as Special Expenses instead.