Alabama rewards college savers with a state income tax deduction for contributions to the CollegeCounts 529 Fund, Alabama’s official 529 plan. Single filers can deduct up to $5,000 per year and married couples filing jointly up to $10,000 per year. This calculator caps your contribution at the right limit, applies your Alabama marginal tax rate, and shows the resulting state income tax saving — while clearly flagging any amount above the cap, which Alabama does not allow you to carry forward.
How it works
The deduction lowers your Alabama taxable income, so the cash saving equals the deductible amount times your marginal tax rate:
Deductible = min(Contribution, Cap) State tax saving = Deductible × Marginal rate
The cap depends on filing status: $5,000 for single, head-of-household, and married-filing-separately filers, and $10,000 for married filing jointly. Any contribution above the cap is not deductible in the current year, and because Alabama offers no carryforward, that excess simply provides no state tax benefit.
Alabama 529 rules explained
- The deduction applies only to the CollegeCounts 529 Fund — out-of-state 529 plans do not qualify for the Alabama deduction.
- The annual cap is per taxpayer, so two working spouses filing jointly share the combined $10,000 limit.
- Alabama’s income tax is graduated with a top marginal rate of 5%, which is the rate most 529 contributors fall under.
- There is no carryforward of contributions above the cap.
Worked example
A married couple filing jointly contributes $12,000 to CollegeCounts in one year and is in Alabama’s top 5% bracket:
- Deductible = min($12,000, $10,000) = $10,000
- Above cap (no benefit, no carryforward) = $2,000
- State tax saving = $10,000 × 5% = $500
If the same couple instead spread the $12,000 across two years ($6,000 each), both years would be fully under the cap and capture deductions on the full $12,000 over time.
Note: This calculator estimates the Alabama state income tax deduction only. It does not model federal tax-free growth, gift-tax considerations, or the impact of the deduction on your overall bracket. Verify current caps and rules at revenue.alabama.gov or with the CollegeCounts 529 plan.