529 Credit Card Rewards - qualify as contribution for state tax deduction?

pimafitz 2010-01-24 12:46:05 UTC #1

We have a 529 plan in Arizona for our daughter. Our Fidelity MasterCard automatically deposits 2% into the account. At year end, Fidelity added about $500 to the 520 plan.

When filing my state taxes, I know that we are allowed to deduct contributions to the 529 plan in Arizona ($750 for singles, $1500 for joint filers.) My question is, can we count the $500 that was deposited from our Fidelity credit card rewards?

drew 2010-01-24 21:54:29 UTC #2

Unless there is a rule which says NO and I'm not aware of same --but must admit I didn't check AZ rules, just my state rules--I'd take it. There is an obvious quid pro quo and its your own money.

Now if you run a multimillion dollar small business so as to generate "rewards" elsewhere it may begin to smell and I'd not venture to know when it smells too bad.

dopps 2010-01-26 15:04:05 UTC #3

I would take a dissenting opinion, as one could argue that this 2% "rebate" is NOT your money going into the 529 and thus not your deduction. Your money went to pay the merchants on your credit card statement, and this is perhaps Fidelity's money. This is really a question for your accountant, as we here (except Joe) are not one.

drew 2010-01-26 18:02:24 UTC #4

No, I fail to follow where the 2% is anything but your money and its a clear quid pro quo for your initial gross amount paid in. No way did Fidelity out of the goodness of its heart make a gift to you of anything.

hoosier_1960 2010-01-27 19:29:51 UTC #5

Check that your state has not disallowed the rewards program, as Indiana recently did. Scrooges.
Indiana 529 credit does not apply to rollovers
(July 2, 2009) - Indiana's 2009 budget specifies that rollover contributions into the state's 529 plan, and any contributions generated through a rewards program, are not eligible for the state tax credit on 529 contributions. The rule becomes effective January 1, 2010.

Mike

bwilk 2010-01-28 15:56:51 UTC #6

Then just get the rewards program to send the money directly to you and then deposit it in the account. I know you can do that with Upromise, not sure about the credit cards.

pimafitz 2010-01-31 23:54:37 UTC #7

Thank you all for your input. I wish there were a clear-cut answer, but alas, it does not appear to be so. (I will check to see if AZ has a position about rewards program contributions, Mike.)

drew 2010-02-01 14:12:21 UTC #8

I would think that to discriminate among ones sources of funding for a 529 as to what counts and what doesn't count for a state tax break is an example of midget minds at work and might even have som eissues under the Federal Constitution's Commerce Clause if the impact was to discriminate essentially against out of sate funding sources--probably not worth the debate. If one state has mental midgets--so be it.

pimafitz 2010-02-02 02:03:40 UTC #9

I follow your line of thinking, Drew, and at first I didn't question the possibility of using my reward deposits for the state deduction. It is, after all, my money. ( bwilk -- this mastercard does not allow the option of taking the reward $ directly.) But then I realized that the program allows other people, such as family members, to assign their own reward $$ to my child's account. We (unfortunately!) don't have that situation, but if we did, I imagine we would only be allowed to use our own reward deposits for the tax deduction. That's what got me thinking -- maybe they aren't even eligible?

pimafitz 2010-02-02 02:18:33 UTC #10

I looked up the AZ tax instructions and it does not mention any restrictions,except that rollevers from one college savings plan to a different college savings plan do not qualify for the deduction. The instructions use the language "you may subtract amounts you contribute to 529 college savings plan ...."

drew 2010-02-02 09:51:17 UTC #11

I would be of view that absent a clear rule against a practice that you may ---take the deduction --and you may do so whether you make your contribution with your right hand or your left hand--and I'd simply just do it....

Now if Sam directs a contribution to Bills plan for Sally there may be some debate as to if Bill is entitled to a deduction for a contribution made by Sam--I sort of doubt it unless it passed thru Bills hands first.

pimafitz 2010-02-03 01:54:51 UTC #12

Sounds reasonable to me. Thanks!

itstoomuch 2010-02-03 13:31:22 UTC #13

This is not a return-of-premium. Let's take the example of a CC 2% "rebate" to a charity of your choice-Is that 2% deductible to you or does the CC take the cost as a deductible expense?

Chose you battles wisely.

For a possible $500 deduction on your income, I'd say that you are risking a delay of refund and a possible audit if you file with the $500 MC contribution.

aryn 2010-02-04 16:09:05 UTC #14

I guess my question is does the 529 sponsor report these contirbutions to the state? I don't know much about state deductions because my state doesn't have one. However, when you contribute to an IRA there is a report required (5498) by the custodian to the IRS. Is there an equivalent for this situation at the state level? I would think so, just for verification purposes. If there is a report and they send it to you than yes deduct it. If there is a report and you don't get it than it is some sort of management kick back??? If there is no report than I would call the AZ dept of revenue.

An IRA contribution would seem similar to me. You have to have the income to do it but it doesn't matter who funds the thing. My cousin could write a check to my IRA and I could deduct it on my 1040 (assuming I qualify). The IRS gets the 5498 showing a contribution and everything is fine.

Did the money get coded as a contribution or something else? Your proof can be the statements.

If you see no guidance anywhere and there are no specific report about this going to AZ than I would take the deduction. My argument would be 1) look at my statements (How would they even dig enough to wonder if they came from a credit card?) 2) YOU choose the cash back program set up in order to get the deduction. Otherwise, why would you not just pick a true cash back cc. Symantics really.

bwilk 2010-02-08 18:29:46 UTC #15

The risk rewards is where I would go just like itstoomuch. I live in AZ also. Our top tax bracket is just under 5% I believe, so your $500 MC contribution is worth about $25. If I also remember correctly, the deduction is limited to $1500 per year. If you have already put in $1500, then this $500 doesn't even matter.

drew 2010-02-09 11:49:14 UTC #16

The AZ language invites debate---and my view is its sometimes better to just do something and NOT discuss it--and let other side sort out if there is a worthy debate