Could a Virginia taxpayer deduct the remaining college-savings or ABLE contribution carryover in full upon reaching age 70?

Plain-English summary

A Virginia contributor had deducted $4,000 annually from a prior college-savings contribution and still had carryover when reaching age 70. He asked whether the balance and comparable ABLE carryovers could be deducted at once.

Yes. At age 70, the ordinary annual cap no longer applied to the contributor's remaining basis.

College savings rule

The usual deduction is limited to $4,000 per prepaid tuition contract or savings trust account per year, with excess carried forward. A purchaser or contributor who has attained age 70 may deduct the full amount paid, minus amounts already deducted.

ABLE rule

For the law addressed in this ruling, Virginia ABLE contributions generally had a $2,000 annual deduction cap per account. At age 70, the contributor likewise could deduct the full contributed amount less prior deductions.

What this means for you

• Track contributions and every deduction claimed by account.
• Carry forward amounts above the ordinary annual cap.
• In the year the contributor reaches 70, calculate the undeducted balance.
• Do not deduct more than total contributions less prior deductions.

Common questions

Q: Did the age-70 rule eliminate the historical caps retroactively?

A: It allowed the remaining undeducted contribution balance in the age-70 year.

Q: Did the ruling apply the same concept to ABLE accounts?

A: Yes, under the ABLE deduction provision then in effect.

Citations and references

• Va. Code § 58.1-322.03(7)(a)-(b) — college savings deduction
• 2016 Appropriation Act, Item 3-5.11(A) — ABLE deduction

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 19-22

Original ruling text

March 26, 2019

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 college savings trust account or ABLE savings trust account when such taxpayer reaches age 70.

FACTS

The taxpayer, a Virginia resident, established and made a contribution to a Virginia college savings trust 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 college savings trust accounts apply to Achieving a Better Life Experience (ABLE) accounts.

RULING

Prepaid Tuition Contracts and College Savings Trust 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 amount paid for or contributed to the college savings trust account less the total amount previously deducted 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

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