Question: I know that qualified withdrawals from college savings plans are now exempt from federal income tax. But what about state taxes?

Answer :

Although qualified withdrawals from college savings plans won't be taxed on your federal income tax return, state income tax treatment may differ. Some state income tax benefits (e.g., tax-free treatment of qualified withdrawals, tax deduction for contributions) may be provided only to state residents who invest in their state's 529 plan. You'll need to check the laws of your state. Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.