Tennessee 529 plan: no state income tax, what counts in 2026
Tennessee once taxed investment income. Since 2021 it taxes neither that nor wages, and that changes what a 529 is measured against.
In the 529 at age 18
$83,047
$3,727 more than the same money in a taxable account, plus $0 of Tennessee tax saved along the way.
| You put in | $59,400 |
| Growth, tax-free for school costs | $23,647 |
| Taxable account after tax | $79,320 |
| Tennessee tax saved, 11 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 |
|---|---|---|---|
| 2 | 9 | $10,800 | $11,427 |
| 4 | 11 | $21,600 | $24,266 |
| 6 | 13 | $32,400 | $38,692 |
| 8 | 15 | $43,200 | $54,901 |
| 10 | 17 | $54,000 | $73,113 |
| 11 | 18 | $59,400 | $83,047 |
Worked out by Radif Partners · How we calculate · Tennessee rule read on October 19, 2026, brackets of tax year 2026 · not tax advice
Tennessee has no income tax on wages, and the Hall income tax on interest and dividends was repealed for tax periods beginning on or after January 1, 2021. A 529 contribution therefore earns no state deduction or credit, and a withdrawal never brings anything back onto a Tennessee return. The repeal also matters for the comparison with an ordinary brokerage account: dividends earned there no longer owe Tennessee tax, so the 529's edge for a Tennessee family is the federal tax it avoids. A Knoxville couple at $120,000 saving $450 a month from a child's seventh birthday would hold about $83,047 at 18, assuming a 6 % yearly return, against $79,320 in a taxable account after federal tax. Federal rules apply without a state overlay: up to $20,000 a year of K-12 costs per child, credential programs, student loans up to $10,000 and Roth IRA rollovers. A family may use any state's plan with no Tennessee tax cost.
| State income tax on wages | None |
|---|---|
| Benefit for contributions | None (no income tax) |
What the Hall tax repeal did for savers
Until 2020 Tennessee residents paid the Hall income tax on interest and dividends, while wages were not taxed. The Department of Revenue's Hall tax page records the repeal for tax periods beginning on or after January 1, 2021, and its withholding guidance confirms there is no state tax on earned income. For a parent choosing between a 529 and a taxable account, that removes the state from both sides of the comparison.
The couple above contribute $59,400 over 11 years. In the 529 the deposits grow to $83,047 at a 6 % return, an assumption, with $23,647 of growth that will never be taxed if it pays for school. In a brokerage account they owe federal tax on dividends every year and, at their income, 15 % federal tax on the long-term gain at sale, leaving $79,320. The $3,727 gap is all federal.
Tennessee account at a different return
In the 529 at age 18
$78,459
| You put in | $59,400 |
| Growth, tax-free for school costs | $19,059 |
| Taxable account after tax | $75,458 |
| Tennessee tax saved, 11 years | $0 |
The state program: what we could and could not read
Tennessee sponsors a college savings program through its Treasury. When we tried to read the Treasury and plan pages on October 19, 2026, they did not respond, so this page gives neither the program's exact current name nor its maximum account balance. A Treasury notice indicated that the program's board met in July 2025 to consider that limit. Families can find both figures in the plan's own disclosure document before opening an account.
The lack of a deduction has one practical effect: no plan is favored by the tax code. A Tennessee resident can compare the state's program with any other state's direct plan on fees and investment choices alone.
No state rules to reconcile on withdrawals
Many states decide for themselves whether K-12 tuition, Roth IRA rollovers or student loan payments count as qualified, and add back deductions when they do not. Tennessee has no such decisions to make. The 2025 federal law applies as written: K-12 costs up to $20,000 per child per year from 2026, recognized credential programs, the $10,000 lifetime loan allowance per borrower and rollovers of up to $35,000 to the beneficiary's Roth IRA. A non-qualified withdrawal owes federal income tax and the extra 10 % on its earnings, and nothing more in Tennessee. The K-12 page shows the federal cap at work.
Crossing into a state with a deduction
A move north or south can bring a state break into play for new deposits. In Virginia, the couple at $120,000 putting $5,400 a year into a Virginia account would save $230, because Virginia counts $4,000 per account. In Georgia, with its own plan, the figure is $269. Neither state rewards deposits to an out-of-state plan, so the family would weigh opening a new account there against keeping the Tennessee one.