By: South Carolina State Treasurer Curtis Loftis, Administrator of Future Scholar College Savings Plan

December 17, 2024

It goes fast, doesn’t it? Just when you’re comfortable with the back-to-school routine, here come the holidays. Take a deep breath and enjoy the season – 2024 version.

But once the decorations are packed up and the wrapping paper is in the trash, I hope you’ll set aside a few moments to get ready for a very different kind of season: tax time. You’ll want to be sure to close out the year strong to be in the best situation when tax day rolls around.

Timing is everything

Taxes are usually due on April 15th of each year – unless the day falls on a weekend. However, this tax season will be different for some states. Because of the devastation of Hurricane Helene, all of Alabama, Georgia, North Carolina, and my state of South Carolina will have their taxes due on May 1, 2025. In addition, parts of Florida, Tennessee, and Virginia will have also have their taxes due on May 1, 2025.

Get motivated

Begin by estimating your federal income tax bill for the year. You can find your tax bracket and standard deduction information on the IRS website. Your federal tax estimate will motivate you to consider using a win-win strategy that can lower your state tax bill.

Save for the win

One of the best moves you can make to subtract from your state tax bill actually involves adding to your own education savings. By contributing to your 529 college savings account, you could reap the benefits of state tax incentives now. More than thirty states and the District of Columbia offer tax incentives to families who save with a 529 plan. These states allow families to deduct at least some percentage of their contributions from their taxable income. Four more states offer tax credits a family can use to offset state income taxes.

The tax savings can be significant. South Carolina allows residents to deduct 100% of the amount they contribute to Future Scholar, South Carolina’s 529 plan, on their SC state income tax return. It’s an excellent benefit for the citizens of my state. Review your plan to find out if you can benefit from tax savings, too.

Deadlines matter

Of course, there’s no deadline to contribute to your 529 account. However, if you want your contributions to qualify for tax savings for your 2024 tax returns, you’ll need to know your state’s deadline. Most states will have a deadline of December 31, 2024, to claim a deduction on your 2024 state income tax returns, but a few states, like South Carolina, allow contributions to be made until taxes are due. Be sure to consult your plan to determine the deadline for contributing funds you can claim on your 2024 return.

Be a front loader

The IRS has a special gifting feature that will allow a larger amount of money to be given at one time. Called frontloading or super funding, this feature gives your funds the ability to compound for a longer time than they would if you were making regular annual contributions.

Through frontloading, your 529 plan may be funded up to the 2024 annual exclusion of $18,000 for a single person or $36,000 for a married couple. When you front-load, you contribute a one-time gift of the amount that is usually allowed over five years – without paying gift taxes.

With frontloading, a single person can contribute $90,000 per child in one year and enjoy the benefits of compounding interest on a larger amount. The contribution will be removed from the contributor’s taxable estate and treated by the IRS as if $18,000 were given per year for five years. Of course, any contributions made beyond this amount over the five years could be subject to federal taxes. A financial professional can help you decide if front-loading could work for your family and your financial situation.

Earmark your refund

Expecting a tax refund in 2025? Decide today to use it to invest in your child’s future education. Earmark it for a lump sum contribution to boost your 529 college savings. That way, you know you’re using it for something meaningful.

Appreciate your genius

While you’re enjoying the last few days of 2024, take a minute to appreciate how wise your decision to save with a 529 account really is. You’re saving for college tax-free, and when the time comes to use those 529 funds to pay for qualified education expenses like tuition, books, computers, and room and board, you’ll be withdrawing your funds tax-free, too. Congratulations – genius move.

About the author:

Curtis Loftis is the State Treasurer of South Carolina. He also serves as the administrator of South Carolina’s Future Scholar 529 College Savings Plan. Visit treasurer.sc.gov or futurescholar.com for more information on ways to save through a 529 plan.