California 529 plan: no state deduction in 2026
California gives nothing for putting money into a 529 and taxes several uses that Washington now treats as qualified.
In the 529 at age 18
$103,617
$8,877 more than the same money in a taxable account, plus $0 of California tax saved along the way.
| You put in | $67,200 |
| Growth, tax-free for school costs | $36,417 |
| Taxable account after tax | $94,740 |
| California tax saved, 14 years | $0 |
Taxable account: dividends taxed every year and the remaining gain taxed at sale, at the 2026 federal capital gains rate for this income, NIIT where it applies, and your state marginal rate.
| Year | Child’s age | Put in | 529 balance |
|---|---|---|---|
| 3 | 7 | $14,400 | $15,697 |
| 6 | 10 | $28,800 | $34,393 |
| 9 | 13 | $43,200 | $56,659 |
| 12 | 16 | $57,600 | $83,179 |
| 14 | 18 | $67,200 | $103,617 |
Worked out by Radif Partners · How we calculate · California rule read on October 19, 2026, brackets of tax year 2025 · not tax advice
California does not let residents deduct 529 contributions, the same as federal law, so there is no state saving to compute on money going in. The value of ScholarShare 529 or any other plan is the growth, which escapes both federal and California tax when spent on college. The catch is that California has not followed the 2025 federal law. Withdrawals for K-12 costs, for postsecondary credential programs, and rollovers from a 529 to a Roth IRA are nonqualified for California: the earnings part is taxed as income and an additional 2.5 % California tax applies, in place of the federal 10 % penalty. A couple at $180,000 who pays $15,000 of private school from an account with 30 % earnings owes about $531 to California on that withdrawal. Student loan payments and apprenticeship costs remain qualified for the state. ScholarShare accepts contributions until a beneficiary's accounts reach $529,000.
| Benefit for contributions | None |
|---|---|
| State plans (official names, no recommendation) | ScholarShare 529 (ScholarShare College Savings Plan) |
| Account balance limit | $529,000 |
| K-12 withdrawals qualified for state tax | No |
| 529 to Roth IRA rollover qualified | No |
| Student loan payments qualified | Yes |
| Add-back on a rollover to another state’s plan | Not settled by the state text |
Nothing on the way in
The Franchise Tax Board's analysis of SB 529 states existing law plainly: like federal law, California does not allow a deduction for contributions to a qualified tuition program. That bill proposed a deduction of $5,000 single and $10,000 joint from 2026. Its later status could not be read on the legislature's own site, and no enacted deduction was found on the official pages read, so the calculator shows no state saving on contributions.
The real gain is the tax that never comes
California taxes investment income at ordinary rates, so a taxable brokerage account loses a slice of every dividend and of the gain at sale to the state as well as to Washington. A family at $140,000 sits in the 8 % bracket of the 2025 schedule. The calculator above compares $400 a month from age four in a 529 with the same money in a taxable account: $103,617 at eighteen, and $8,877 more than the taxable route after both federal and California tax. The 2026 California brackets were not yet published, so the 2025 schedule is used.
Three withdrawals California still taxes
K-12 costs
Federally, a 529 can pay up to $20,000 a year of K-12 costs per child. California does not conform to K-12 treatment at all, tuition included. The Schedule CA (540) instructions send the earnings part of such a withdrawal to income as an adjustment, and Form 3805P adds the 2.5 % tax. In the example above, $4,500 of earnings taxed at 9.3 % plus 2.5 % gives $531. Try another tuition figure here.
California tax on a K-12 withdrawal
Tax-free from the 529 this year (federal)
$15,000
| Federal cap per child, 2026 | $20,000 |
| Above the cap | $0 |
| Federal tax and 10 % on that part | $0 |
| California treatment | Not qualified: add-back or tax |
Credential programs
The 2025 federal law added postsecondary credentialing costs to the qualified list under section 529(f). The Form 3805P instructions say California does not conform, so the earnings part of a withdrawal for such a program is taxed with the extra 2.5 %.
Rollovers to a Roth IRA
The federal rule allows up to $35,000 per beneficiary to move to a Roth IRA once the account is 15 years old. California treats the move as a nonqualified distribution. A graduate at $60,000 who rolls $20,000 with 45 % earnings owes about $945 to California, even though the transfer is tax-free federally. The Roth rollover page covers the federal conditions.
Federal room for the Roth move
Can move to the Roth IRA this year
$7,500
| Yearly room (IRA limit, earned income) | $7,500 |
| Lifetime limit left | $35,000 |
| Account open long enough | Yes |
| 2026 IRA limit | $7,500 |
What stays qualified for California
California has conformed since 2021 to the federal treatment of student loan repayments and registered apprenticeship costs. College tuition, fees, books and housing remain qualified as before, and a qualified rollover to another 529 is not taxed. ScholarShare 529 is the state's plan; families may use any state's plan with the same California result, since none earns a deduction.