Better late than never. Several months
ago, Arizona passed legislation that allows for a state income tax
deduction for contributions to Arizona-sponsored 529 plans, starting in
2008. The downside is that it is capped at $750 for individual
taxpayers, and $1500 for couples filing jointly. Generally, the amount
that is deductible pretty much runs the gamut from no deduction to a
maximum equal to the taxpayer’s adjusted gross income for the year.
Arizona’s max falls at the low end of the spectrum, but it’s better
Important note: the deduction is subject to recapture in the event
of a non-qualified distribution, which essentially means that the funds
are not ultimately used for approved educational purposes.