The College Investor website recently ranked Indiana’s 529 Plan the nation’s number-one plan with a net Return on Investment (ROI) score of 87.8%. New Jersey ranked second with a score of 74.3%, and New York came in a close third with 74.2%. Each state’s 529 savings programs are assessed on fees and state tax breaks to determine the ROI Score. Click here to see the complete list and how the plans are ranked.
Indiana Tax Credit
Any Indiana taxpayer who expects to pay for future education expenses should consider opening a 529 plan. To encourage you to contribute to an Indiana529 Savings Plan, the State of Indiana will give you a current-year tax credit for contributions made by the tax filing deadline.
The credit is 20% of the combined contributions to one or more Indiana529 Savings Plan accounts during the tax year up to $7,500. The amount of the taxpayer’s adjusted gross income tax liability for the taxable year is reduced by the amount of the credit, up to $1,500. The credit will not offset any federal or county tax liability. Note: if your filing status is married filing separately, your maximum credit is $750.
Meet Linda
Last year (2025), “Linda,” an Indiana resident, set up an Indiana529 Savings Plan for her son, “Timmy,” and contributed $7,500 to his 529 plan. Her total Indiana tax liability for 2025 was $2,500. She made prior tax payments via paycheck withholding of $2,500, so she is entitled to a $1,500 529 Plan Credit. When she filed her income tax return in 2025, $1,500 of the 529 Plan Credit was applied against Linda’s $2,500 tax liability, thereby reducing this tax liability to $1,000. Linda overpaid her 2025 taxes by $1,500 and was entitled to a $1,500 refund.
What If Your Tax Liability Is Lower Than $1,500?
Linda’s mother, “Sally,” also an Indiana taxpayer, set up an Indiana 529 plan for Timmy in 2025. Sally contributed $7,500, but her total Indiana tax liability in 2025 was only $1,000. When Sally filed her 2025 income tax return, $1,000 of the 529 Plan Credit was applied against Linda’s $1,000 tax liability, reducing it to $0. The remaining $500 of the 529 Plan Credit is not usable. Indiana taxpayers cannot carry back, carry forward, or receive a refund for any unused 529 credit. If Sally expects her 2026 Indiana tax liability to be the same as 2025, she only has to contribute $5,000 to one or more Indiana 529 plans to receive the same $1,000 tax credit.
Growth of 529 Plans In Indiana
In January 2026, Indiana Treasurer Daniel Elliott announced that assets in the Indiana529 education savings plans now exceeded $9 billion, up from 6.2 billion in 2021.
The number of Indiana529 accounts has also grown, now surpassing more than 463,000 accounts currently open in Indiana. The average account balance is $20,600, about half of the average in-state tuition bill for a 4-year degree in Indiana.
When I Take Money Out, Do I Need To Return The Tax Credit?
One frequently asked question about 529 plans is about qualified expenses. If an Indiana taxpayer uses funds from an Indiana529 Savings Plan for nonqualified expenses, those distributions are subject to an Indiana tax credit recapture. In addition to the income taxes and 10% penalty, you must repay all or part of the tax credit during the same year you make the nonqualified withdrawal.
According to Indiana Income Tax Information Bulletin #98 a qualified withdrawal is defined as a “distribution from an account of the Indiana529 Savings Plan that is made to pay for qualified higher education expenses, excluding any withdrawals or distributions for qualified higher education expenses if the withdrawal or distribution is made from an account that is terminated within 12 months after the account is opened.
Qualified withdrawals also include withdrawals made due to:
- The death or disability of an account beneficiary
- An account beneficiary receiving a scholarship that paid all or part of the qualified higher education expenses of the account beneficiary
- A transfer of funds by the plan from one third-party custodian to another
- A transfer of funds to an Indiana ABLE 529A savings plan, beginning in 2024″
To see the list of what qualifies as an education expense, click here to read the full IRS Publication 970 Tax Benefits for Education.
If you want to take a 529 distribution for anything other than qualified expenses, consider consulting with a tax professional or financial advisor first. Discuss alternatives that might not subject you to taxes and penalties.
A Word About Roth Rollovers
The SECURE 2.0 Act authorized 529-to-Roth IRA rollovers effective as of 2024 as an option for leftover funds, for plans opened for 15 years or more. However, Indiana treats those rollovers as non-qualified withdrawals for tax purposes. Therefore, a withdrawal may be subject to the tax credit recapture, meaning Indiana will claw back the tax break you once received.
Learn More
To learn more about Indiana529 Savings Plans, call 866-485-9415, or visit indiana529direct.com. Planning and saving for college is simple once you get started. The team at Hurlow Wealth Management is here to help. For over two decades, we have helped Midwest Millionaires and their families find clarity, make decisions with confidence, and achieve comfort in saving for college and beyond. Schedule a FREE introductory call today.
