New Tax Law Brings Changes for 529 Plans




Payroll.  Tax.  Accounting.  HR Consulting

Have you heard the news?  Section 529 plans are not only being used for college education, but for elementary education as well.  The new tax law, Tax Cuts and Jobs Act (TCJA), will let you tap into a Section 529 plan to pay for many elementary and secondary schools starting in 2018.

The TCJA is opening Section 529 plans to pre-college schooling to include tuition at elementary or secondary public, private or religious schools and 529 plans will no longer be available for home schooling expenses.  The new tax law will limit tax free distributions to $10,000 a year for private, elementary and secondary school expenses.

Up until now, the only tax-free savings accounts that were offered for K-12 were Coverdell Education Savings Accounts (ESAs).  Now that the 529 Plans are being used for tax-free private, public and religious schools, those who are currently saving with the Coverdell ESAs and are wanting to switch to a 529 Plan can do a rollover with no tax consequences.

It is recommended to open separate accounts, one education fund for college and one education fund for elementary school K-12, to keep track of which education fund you are paying for.  That way you can keep track of your investment goals for each account and take out the appropriate amounts when you need to.

Author:  Julie Brickl, Accountant, Kollath CPA