Changes to 529 Plans After Tax Reform

3 Changes to 529 Plans After Tax Reform Header ImageIf you have a 529 college savings plan for a child or loved one – or if you’re hoping to open one – you might have noticed that 2017’s tax reform made a few key changes to the way these plans work.

Here’s what’s new, and what these powerful savings accounts can offer.

529 basics

529 College Savings plans allow for tax-free growth and distributions for qualified educational expenses. As the name implies, they were developed for higher education expenses, the idea being that parents could put away money over time, accessing some of the benefits of long-term growth.

A few key facts about 529 plans:

  • There are no income limits: anyone can open and contribute to an account
  • Contributions are made on an after-tax basis, while qualified educational distributions are tax-free
  • There are usually “soft caps” on contributions, typically in excess of $300,000
  • Annual contributions above the gift tax exclusion limit may trigger taxes
  • You can make contributions for a student of any age, and there are typically no limits on when you need to deposit money in the account

After 2017’s tax reform, these features have been modified with a few critical changes.

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Use your 529 for any educational expense

Now your 529 college savings plan isn’t just for college!

Under the new tax laws, you can distribute up to $10,000 per student per year for:

  • Elementary or secondary school (K-12)
  • Public school, private school, or religious school

For example, if you have a son or daughter who attends 8th grade at a Catholic school, you can use his or her 529 savings to help pay tuition.

Tuition refunds can be contributed to your 529

Similarly, if a student who has a 529 plan receives a tuition or other qualified refund from their school, the money can be recontributed within 60 days on a tax-free basis. This can be a great way to shore up savings again after dropping a class – no matter what the reason.

Rollovers to ABLE accounts

ABLE accounts are tax-advantaged savings accounts for people with disabilities. They provide tax-free growth and withdrawals for qualified expenses, including education and qualified living expenses.

If you have a child with a 529 who has a disability, you’re now allowed to roll the amount over into an ABLE account on a tax-free basis. The maximum allowable rollover is $15,000 for 2018.

Should I change how I use my child’s 529?

For some parents, the ability to access 529 savings for elementary and secondary school is a huge asset – especially if a financial shock makes money tight for a year or two.

But a decision about using 529 savings should be made in the context of your overall financial plan.

We recommend considering the following:

  • The amount of savings you have for both basic schooling and higher education
  • Alternative sources of funds or financing
  • Your child’s age
  • The amount of growth you’re hoping to achieve in your 529 accounts

Generally, if you have ample savings and aren’t concerned about covering the cost of college, the ability to use 529 savings now can be a great help. But if your child is younger or you’re relying on your 529 to help finance a hefty college bill later on, you might want to consider whether it’s better to find other ways to pay for school today so that your savings have more time to grow for tomorrow.

In any case, your individual situation should dictate the appropriate course of action. We recommend consulting with a qualified financial advisor to find the strategy most suitable for you.

Finally: Don’t forget about state taxes!

While tax reform changed the way 529 plans are treated on a federal basis, be sure to keep in mind that your state may tax your 529 differently. Speak to your financial advisor or accountant to find out about local rules governing your 529 contributions.

Don’t forget about this other critical tax change

The 2017 tax reform effort also had an impact on many other tax issues, including homeownership. Our free guide to making the most out of your home’s tax advantages under the new rules can help.

Download Your Home is a Tax Haven today!

Free Download Your Home is a tax Haven

Learn More

You know that your home can be a powerful part of building wealth, but are you taking full advantage?

Download our free guide to the tax benefits of home ownership.

Let Us Help!

We can discuss this topic and more at a complimentary appointment. As a bay area retirement planning coaches, we can give you a review and make suggestions based on your retirement objectives.

3 Changes to 529 Plans After Tax Reform Infographic (Small)

Important Disclosures
The opinions voiced in this article are for general information only. They are not intended to provide
specific advice or recommendations for any individual and do not constitute an endorsement
by United Planners. To determine which investments may be appropriate for you, consult with your financial
professional. Please remember that investment decisions should be based on an individual’s
goals, time horizon, and tolerance for risk. Neither diversification nor asset allocation can
ensure a profit or prevention of loss in times of declining values. United Planners does not
render tax advice. Securities and advisory services offered through United Planners Financial Services, member
FINRA, SIPC. Pasquale Vitucci, CA Insurance Lic. # 0758212, is an Endorsed Agent of Vitucci &
Associates Insurance Services CA Insurance Lic. # 0I06319. Vitucci & Associates Insurance
Services and United Planners are separate and unrelated companies.
This page contains links to third-party company websites. By selecting a link, you will be leaving
our website and launching a new browser window. These links are provided for informational
purposes only and should not be viewed as an endorsement, sponsorship, solicitation or other
affiliation with respect to any third parties. We are not making any recommendations or
providing any advice on securities in particular or investments in general. Neither Vitucci &
Associates nor United Planners Financial Services have reviewed the content of, and are not
responsible for, the information or the results of the third-party websites.

Further Reading
Guidance on 529 changes: https://www.irs.gov/newsroom/irs-offers-guidance-on-recent-529-
education-savings-plan-changes
State tax laws and 529 plans:
https://www.savingforcollege.com/compare_529_plans/index.php?plan_question_ids%5B%5D
=437&mode=Compare&plan_type_id=1&page=compare_plan_questions

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