If you contributed to a New Mexico-approved 529 plan during the tax year, you may qualify for a deduction on your New Mexico return. If you received a nonqualified distribution, you may need to add part of that distribution back to your New Mexico income.
What Is a 529 Plan?
A 529 plan is a tax-advantaged education savings plan designed to help families save for future education expenses. These plans can be used for a variety of qualified educational expenses, including:
- Tuition
- Room and board
- Books and supplies
- Computers and technology equipment
- Required fees
- Certain expenses for special-needs students
- K-12 tuition in qualifying situations
- Transfers to qualifying ABLE accounts
Qualified schools generally include accredited public and private colleges, universities, community colleges, vocational schools, graduate schools, and many eligible institutions outside the United States.
New Mexico Deduction for 529 Plan Contributions
New Mexico allows a deduction for contributions made during the tax year to a New Mexico-approved Section 529 education savings plan.
Contributions may include amounts rolled over from a non-New Mexico 529 plan into a qualifying New Mexico plan.
If you are Married Filing Separately, each spouse may claim one-half of the deduction that would be allowed on a joint return.
What About Rollovers?
Families may be able to roll unused 529 funds into a Roth IRA for the beneficiary if certain federal requirements are met, including:
- The 529 account has been open for more than 15 years.
- The amount being rolled over has been in the account for at least 5 years.
- There is a lifetime rollover limit of $35,000 per beneficiary.
- The rollover must be made to a Roth IRA owned by the designated beneficiary.
Important: Rollovers from a New Mexico 529 plan to another state's 529 plan may be treated as nonqualified distributions and could be subject to New Mexico tax.
What If I Don't Use the Funds for Educational Expenses?
Certain nonqualified distributions must be added back to New Mexico income, especially if those contributions were previously deducted on a New Mexico return. Examples include:
- Contributions refunded when closing a New Mexico-approved 529 plan account.
- Contributions rolled from a New Mexico-approved 529 plan to a non-New Mexico-approved 529 plan.
Do not include:
- Earnings refunded to the owner.
- Earnings rolled over to another state's 529 plan.
- Qualified distributions used for eligible education expenses.
Reporting Nonqualified Distributions
If you received a nonqualified distribution, enter the amount in the program by following these steps:
- Go to State Section.
- Select the three dots to edit the New Mexico return.
- Select Additions to Income.
- Select Contributions Refunded from the NM Education Trust Fund.
Reporting 529 Plan Contributions
To claim the deduction for contributions to a New Mexico-approved 529 plan:
- Go to State Section.
- Select the three dots to edit the New Mexico return.
- Select Deductions from Income.
- Select Deduction for Contributions to NM Education Trust Account.
Important Reminder
New Mexico only allows this deduction for contributions made to a New Mexico-approved Section 529 plan established and approved by the New Mexico Education Trust Board. Contributions to other states' 529 plans generally do not qualify for the New Mexico deduction.
For more information please visit: NM College savings