The Vermont Higher Education Investment Plan (VHEIP) is Vermont's section 529 college saving plan. Qualified withdrawals are exempt from Federal and Vermont state income tax. There is no annual maximum contribution limit; however, a lifetime limit of $352,800 applies to all accounts opened for a beneficiary.
Beginning in 2007, a taxpayer filing a return in the State of Vermont, including each spouse filing a joint return, can be eligible for a nonrefundable credit against their tax equal to ten percent of the first $2,500, contributed by the taxpayer per beneficiary.
Neither the contributor nor the beneficiary is required to be a Vermont resident. However, because VHEIP credits are nonrefundable, they may only be applied against the Vermont income tax liability of an individual, estate, or trust. The credit amount cannot exceed the total tax liability and unused credits may not be carried forward or back to another year. A taxpayer may only claim a credit for the contributions made to a VHEIP account that he or she owns.
In order to qualify for the tax credit, contributions must be made to a VHEIP plan during the calendar year and must be made in cash. A rollover from another education account may qualify as contribution to a VHEIP plan.
A distribution from a VHEIP that is not excludable from federal gross income in any taxable year triggers a repayment requirement of five percent of the distribution, up to the maximum of the total Vermont credits received by the taxpayer. Ten percent of any non-excludible distribution must be repaid if the contributions are made in 2007 or there after.