California may be the most-populous state, but its 529 college savings plan is dwarfed by those offered by six states including Nevada, Utah, Maine and New Hampshire.

That’s partly because California does not market its plan nationally, and it doesn’t sell it through brokers or advisers who earn a commission. But it’s also because California has never offered residents a state-tax incentive to invest in its plan, called ScholarShare.

A bill introduced in the Assembly last month would create one. AB211 would let Californians deduct the amount of their annual contribution to one or more 529 accounts — up to $10,000 per tax return for married couples or $5,000 for singles each year — on their state-tax return. They would not have to itemize deductions to get this benefit.

ScholarShare does offer a one-time, matching grant for new accounts worth up to $200 per beneficiary to households making up to $75,000, plus $25 if they sign up for automatic contributions.

Since 2014, legislators have introduced three other bills that would have created a state-tax credit for investing in ScholarShare, but none went too far. There is no cost estimate for the new bill yet, but tax deductions are generally less expensive for states than tax credits, said its sponsor, Assemblyman Ian Calderon, D-Whittier (Los Angeles County).

These plans were created in 1996 and named after the section of the U.S. tax code that gives federal tax benefits to people who invest in state-sponsored college savings plans. Every state has at least one plan and some have two or even three.

You get no federal tax deduction for money you put in, but the money grows tax free. It’s exempt from federal and state tax when you withdraw it, as long as it’s used to pay qualified education expenses for the beneficiary named on the account. Qualified expenses include tuition, fees, room and board, books, supplies, computers and internet service for undergraduate and graduate students. If you use the money for non-qualified expenses, the amount that represents account earnings is subject to federal and California income tax and penalties.

The sweeping federal tax law that took effect in 2018 also exempted 529 plan withdrawals from federal tax when used to pay tuition at elementary and high schools including private and religious ones, up to $10,000 per student per year. California, however, did not conform to the federal law, so those expenses would not get the exemption from state income tax and penalty.

You can open a 529 account and name a child, grandchild or anyone else including yourself as the beneficiary. Multiple people can open separate accounts for the same beneficiary.

There is no limit on how much you can contribute each year, but you can no longer contribute to a beneficiary’s account once the balance for that beneficiary in all 529 plans combined reaches a limit set by your state. California has the highest limit, $529,000.

Caution: There are gift tax issues to consider if you plan to contribute more than $15,000 in one year to an account for someone else.

Top 10 plans These are the largest 529 college savings plans, ranked by fourth-quarter assets. Some states have more than one plan, but these are the largest individual ones. California has only one. State Plan nameAssets* Virginia CollegeAmerica $59.1 New York NY College Savings Program-direct 23.2 Nevada The Vanguard 529 Savings Plan 17.4 Utah My529 Plan (formerly Utah Educational Savings Plan) 12.2 New Hampshire Unique College Investing Plan 12.1 Maine NextGen College Investing Program (adviser sold) 8.5 California ScholarShare College Savings Plan 8.3 Ohio CollegeAdvantage 5.7 Massachusetts U.Fund College Investing Plan 5.7 Maryland Maryland College Investment Plan 5.5 *In billions, fourth quarter 2018 Source: Strategic Insight

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If a beneficiary doesn’t use all the money in his or her account, the account owner can transfer it to another beneficiary. “If a client has multiple children, we might front-load the older child’s plan knowing that if there is money left over, it can waterfall over to the younger children,” said Sandi Bragar, a partner with wealth management firm Aspiriant.

Any person can invest in any state’s plan. More than half of the states offer a deduction or credit to residents who invest in their home-state plan. Of these, seven states will even give a credit to residents who invest in out-of-state plans.

A $10,000 deduction “is in the middle” of what states offer, said Mark Kantrowitz, publisher of SavingforCollege.com.

California is one of only seven states that have an income tax and don’t offer any tax incentive.

According to two estimates, “about three-fourths of 529 accounts owned by Californians are in out-of-state plans,” said Matt Newman of Blue Sky Consulting, which has done research for ScholarShare.

Some investors go out of state because they have an adviser or other accounts at a company — such as Fidelity, Merrill Lynch or Vanguard — that runs a plan, or an adviser who gets a commission for selling a plan, or an independent adviser who just prefers a particular plan.

ScholarShare is under the state treasurer’s office, but run by the firm TIAA-CREF Tuition Financing. It is sold directly to investors, not through advisers who get a fee or commission.

Investors can choose from a number of index and actively managed funds, similar to what they’d see in a 401(k) plan. About 75 percent of its $8.3 billion in assets are in funds managed TIAA-CREF, the rest are managed by firms such as T. Rowe Price, DFA, Pimco and MetWest.

ScholarShare generally gets good reviews. It’s one of only nine state plans rated “silver” by Morningstar, which said it “remains competitive on both fees and choice.” Fees range from zero to 0.57 percent per year, depending on the fund.

Only four plans get Morningstar’s highest “gold” rating: Utah’s my529 plan, Virginia’s Invest529 plan, Illinois’ BrightStart direct-sold plan, and Nevada’s Vanguard 529 plan.

Morningstar analyst Jason Kephart said the differences between gold and silver ratings “are very nitpicky.”

SavingforCollege.com had given ScholarShare its top rating of “five caps” for several years, but reduced it to “4.5 caps” in the third quarter, because its investment performance suffered mainly because of its exposure to foreign stocks, Kantrowitz said.

Kevin Gahagan, a principal with financial planning firm Private Ocean, usually recommends Utah’s or West Virginia’s plan for California clients, and steers them toward age-based funds. “We think that Utah and West Virginia are working with better fund-management companies,” including Vanguard and DFA, he said.

If ScholarShare offered a state tax deduction, “We would absolutely look at it more carefully,” he said.

Bragar said that for clients in states without a tax incentive, “we are using the Utah plan,” because of its “great investments and really low cost.” But if there is a tax benefit, they typically use the home-state plan.

The deduction proposed in AB211 would not apply to contributions transferred into ScholarShare from another state’s plan, or from one beneficiary’s account to another’s.

As with any tax deduction, the biggest savings would go to people in the highest tax brackets, and to those able to contribute the full $5,000 or $10,000 per year.

A dollar-for-dollar credit is “more equitable,” because everyone gets the same benefit regardless of their tax bracket, said Jason Delisle, a fellow with the American Enterprise Institute. But he also said that credits usually cost states more than deductions.

Julio Martinez, ScholarShare’s executive director, said the “vast majority” of its 317,000 account holders “are working class, middle class.”

The average account size in the third quarter was $28,000 and the median was less than $10,000. Only 6 percent had balances of $100,000 or more. A tax deduction would “draw attention” to ScholarShare and help it grow, Martinez said.

That could help all account holders because a larger fund can spread its costs over more accounts, and fees can come down.

A deduction would reward some savers for doing something they’d do without a tax incentive. But it also would cause some people “to open an account who otherwise wouldn’t, or to save more,” Newman said. And some research shows that students are more likely to attend college if they have a college savings account, “even if it’s a few hundred dollars.”

Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender@sfchronicle.com Twitter: @kathpender