Parents can reap the benefits of a Virginia 529 tax deduction by investing in a college savings plan for their child's educational future. Virginia has two college savings plans which allow a $2,000 state tax deduction each year for state income tax payers to receive the Virginia 529 tax deduction. Additionally, unlimited carry forwards are applicable for future tax years.

The following information outlines the additional advantages and important rules regarding the tax deduction. You should discuss how the deduction applies to your specific circumstances with a tax, legal or financial advisor.

You can only take advantage of the Virginia 529 tax deduction through the CollegeAmerica plan managed by Capital Research and Management and the Virginia Education Savings Trust (VEST) which is managed by the Virginia College Savings Plan Board. You must be a Virginia state tax payer to receive the deduction.

There are no income limits for taking the Virginia 529 tax deduction. In addition to the account owner, anyone can make contributions to Virginia's 529 savings plan. However, for state tax reporting purposes, the amounts are credited to the account owner and do not qualify for the Virginia 529 tax deduction.

Even though you must be a Virginia state tax payer to benefit from the deduction, the beneficiary of the 529 college savings plan does not have to be a Virginia resident. He or she can live in any state and use the funds to attend any eligible institution in the United States or abroad.

Parents are not the only ones who can take advantage of the Virginia 529 tax deduction. A grandparent, aunts, uncles - anyone who makes contributions to an Oregon 529 college savings plan - is eligible to take the state tax deduction as long as they pay Virginia income taxes.

You may open a college savings account for more than one beneficiary, but you cannot claim the maximum Virginia 529 tax deduction for each beneficiary. The maximum state tax deduction can include contributions to more than one account, but the total cannot exceed the maximum allowed.

Earning from either one of Virginia's 529 college savings plans is tax-free. Additionally, the money invested will pay for qualifying expenses such as tuition fees, textbooks, computers, supplies, and room and board and can be withdrawn without incurring federal and state income tax. Funds withdrawn for non-qualifying expenses are subject to a 10 percent federal income tax penalty. However, if your beneficiary receives a scholarship and you request a refund, the 10 percent penalty does not apply.