Look to Their Future: VT529 Education Savings & Vermont Tax Credit

Learn how VT529 college savings plan offers a 10% Vermont state income tax credit on contributions. Find out who qualifies, contribution limits, and how to claim the credit.

What Is VT529?

VT529 (also called VHEIP) is Vermont’s official 529 college savings plan administered by VSAC. It’s designed to help families save tax-advantaged money for all kinds of education: college, trade school, apprenticeships, adult re‑training—even graduate school or student loans repayment.

  • Start with just $25
  • Six investment portfolios including age-based options
  • Funds can transfer anytime to other beneficiaries

Vermont’s 10% State Income Tax Credit

One of VT529’s biggest perks is the 10% Vermont income tax credit:

  • Applies to the first $2,500 contributed per beneficiary per year (up to $250 credit for single filers).
  • Joint filers can claim credit on the first $5,000 ($500 max)
  • Rollover contributions from another state’s 529 plan are also eligible—provided they remain in VT529 through December 31
  • Gifts from Vermont taxpayers into any VT529 account count toward the credit

Key deadlines:

  • Contributions must be deposited by December 31 to count for that tax year
  • Use VT529 contribution statements and Schedule IN‑119 to claim the credit during tax filing

Qualified Savings Uses

Tax-free withdrawals can be used for:

  • College tuition, fees, books, supplies, On‑ or off‑campus housing and meals, Computers and required equipment, Apprenticeships, certificate/trade programs
  • Even college loan repayments (up to $10,000 lifetime)

Important note:
Withdrawals for K–12 tuition may trigger a 10% Vermont tax recapture if you claimed the tax credit previously

Why VT529 Is a Strong Choice

  • Low minimum contributions ($25 to open, $15 with payroll deduction)
  • Tax-free growth and withdrawal for qualified expenses
  • Estate planning benefits: contributions qualify for federal gift tax exclusion
  • Flexible gifting: gift cards, direct contributions, and e‑gifts from family
  • Financial aid friendly: considered a parental asset in FAFSA, reducing expected contribution by only ~5.6%

How to Open & Claim Your Credit

  1. Open a VT529 account online or by mail with just $25
  2. Contribute early and by December 31—via one-time, automatic deposits, payroll, gifts, or rollovers
  3. Keep records—download your VT529 contribution report.
  4. Claim credit on Vermont Form IN‑119 when filing taxes
  5. Use funds wisely for eligible educational expenses to avoid recapture

Real-World Example

  • You contribute $2,500 in 2025 to VT529 for your child.
  • You save $250 in Vermont taxes, reducing your state tax bill.
  • Your investment grows tax‑free, and withdrawals for college costs are also tax‑free.
  • If the child doesn’t attend college, you can transfer the account to another eligible family member.

Common Pitfalls to Avoid

  • Missing the December 31 deadline—any post‑year‑end contribution won’t count for that tax year.
  • Using funds for K–12 tuition after claiming credit—may trigger a 10% credit recapture
  • Failing to retain documentation—keep statements in case of audit.

VT529 is a compelling tool for Vermont families to save for higher education. The combination of low entry cost, flexible investment options, and a 10% state tax credit makes it a smart step toward future financial security. With disciplined contributions and strategic withdrawals, you can maximize returns—both for your schooling and your tax savings.

You Might Also Like:

  • How to Compare 529 Plans from Different States
  • Tax Impacts of K–12 Withdrawals from 529s
  • Using VT529 for Apprenticeships and Technical Training
  • How 529 Savings Affect College Financial Aid
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