What deduction could a Virginia contributor claim for prepaid tuition or ABLE contributions after reaching age 70?

Plain-English summary

Virginia ruled that a prepaid-tuition contributor who reached age 70 could deduct the remaining contribution balance, reduced by amounts already deducted, without the usual $4,000 annual-per-account limit.

The same basic rule applied to Virginia ABLE savings trust accounts. Although their ordinary deduction was limited to $2,000 per account per year, a contributor age 70 or older could deduct the full remaining contributed amount after prior deductions.

Common questions

Did age 70 erase prior deductions? No. The remaining deduction was reduced by amounts already claimed.

What were the ordinary annual limits? $4,000 for prepaid tuition or savings accounts and $2,000 for ABLE accounts.

Citations and references

• Va. Code § 58.1-322.03 7 a-b
• 2016 Appropriation Act, Item 3-5.11

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-171

Original ruling text

October 16, 2018

Re: Request for Ruling

Dear *:

This will reply to your letter in which you request a ruling on the amount of a deduction that a taxpayer may claim for contributions to Virginia prepaid tuition accounts or ABLE savings trust accounts when such taxpayer reaches age 70.

FACTS

T he taxpayer, a Virginia resident, established and made a contribution to a Virginia prepaid tuition account in 2013. He claimed a $4,000 deduction for each taxable year from 2013 through 2016. The taxpayer reached age 70 in 2017. The remaining balance of the contribution carried forward exceeds $4,000. The taxpayer inquires whether he can claim a deduction for the balance of the contribution. He also asks whether the same carryover rules for prepaid tuition accounts apply to Achieving a Better Life Experience (ABLE) accounts.

RULING

Prepaid Tuition Accounts

Virginia Code § 58.1-322.03 7 a allows a deduction to the purchaser or contributor for the amount paid or contributed during the taxable year for a prepaid tuition contract or savings trust account entered into with the Virginia College Savings Plan. Generally, the amount deducted on any individual income tax return in any taxable year is limited to $4,000 per prepaid tuition contract or savings trust account. To the extent the purchase price or the amount paid during the year exceeds $4,000 per contract or account, the remainder may be carried forward and deducted in future taxable years.

Pursuant to Virginia Code § 58.1-322.03 7 b, a purchaser of a prepaid tuition contract or savings trust account who has attained age 70 is allowed to deduct the full amount paid for the contract or account, less any amounts previously deducted. Because the taxpayer turned 70 in 2017, he may deduct any amount over $4,000 up to the remaining balance for the 2017 taxable year less the total amount contributed for the 2013 through 2016 taxable years.

For example, if a 66 year old Virginia resident contributed $70,000 to a college savings trust account in 2018, the individual would be able to claim a $4,000 deduction of the contribution in each of the 2018 through 2021 taxable years. When the resident attains the age of 70 in 2022, $54,000 ($70,000 less the $16,000 previously deducted) would be available to be deducted for the 2022 taxable year.

ABLE Accounts

During the 2016 General Assembly session, Item 3-5.11 of the 2016 Appropriation Act (House Bill 30, Chapter 780)( the “Act”) established an individual income tax deduction for contributions to a Virginia ABLE account effective for taxable years beginning on or after January 1, 2016. House Bill 2306 (2015 Acts of Assembly, Chapter 311) and Senate Bill 1404 (2015 Acts of Assembly, Chapter 227) established Virginia ABLE savings trust accounts to be administered by the Virginia College Savings Plan.

Pursuant to § 3-5.11 A of the Act, Virginia allows an individual income tax deduction for the amount contributed during the taxable year to an ABLE savings trust account. This deduction is generally limited to a maximum of $2,000 per ABLE account. A contributor to an ABLE savings trust account who reaches age 70, however, is not subject to the annual $2,000 limitation. Such contributor is allowed a deduction for the full amount contributed to an ABLE savings trust account, less any amounts previously deducted. This provision operates essentially the same as the deduction under Virginia Code § 58.1-322.03 7 for individuals who are 70 years old and beyond.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1783.B