Virginia rewards individuals and families who are saving for higher education through the Virginia College Savings Plan, but it’s up to account owners to remember to take their 529 state tax deduction.

For 2007 taxes, use Schedule ADJ to Form 760, Virginia Individual Income Tax Form - this is the form Virginia account owners need to report contributions to their Virginia 529 accounts.

Virginia 529 plan account owners who file Virginia income taxes can deduct up to $2,000 a year for each Virginia prepaid tuition contract – VPEP – and each Virginia college savings account – VEST, CollegeAmerica or CollegeWealth. Contributions over that amount may be carried forward on an unlimited basis until all contributions have been fully deducted. Account owners age 70 and over are not subject to the $2,000 annual limit.

The deduction, only available to owners of Virginia 529 accounts, is just one of the state and federal tax advantages that make the Virginia College Savings Plan a great opportunity to plan – and save – for your children’s, or your own, higher education.

Virginia’s college savings incentive will get even better in 2009, when the Virginia income tax deduction will double to $4,000 a year per account. The increase was approved by the General Assembly in its 2007 session and is not effective until Jan. 1, 2009.

“The tax deduction for Virginia 529 plans will double in 2009. But the current $2,000 a year break is still in effect until then,” said Mary G. Morris, Executive Director of the Virginia College Savings Plan.

Virginia’s 529 savings accounts can be used for most higher education expenses, including tuition and mandatory fees, room and board, textbooks, supplies, special needs services and computers required by schools for enrollment.

If 529 funds are not used for qualified higher education expenses, the account owner must add the amount deducted back to his or her Virginia income for state income tax purposes. There is no recapture of the deduction for refunds resulting from a beneficiary’s death, disability or receipt of a scholarship.

Additional information is available from the Virginia Department of Taxation, which addresses Virginia’s 529 plans at http://www.tax.virginia.gov/site.cfm?alias=Deductions and at http://www.tax.virginia.gov/site.cfm?alias=Subtractions4.