By: Shane M. Spells, CFP, Certified Financial Planner with ARTAAD Financial Private Wealth Management and current MDS parent
Ok, who doesn’t like a beneficial tax break? I know I do!! Here is one you may have missed. It is good information for parents who are not aware of the impact the Tax Cuts and Jobs Act had on the 529 plan.
The Tax Cuts and Jobs Act (TCJA), enacted in late 2017, produced the most sweeping tax law change in more than 30 years. The TCJA, often referred to as tax reform, affects nearly every taxpayer. TCJA expands the type of education for which a taxpayer can use 529 plan funds. The new law allows distributions from 529 plans to be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year at an elementary or secondary (K-12) public, private or religious school of the beneficiary’s choosing. For more information, see Publication 970, Tax Benefits for Education.
What is a 529 plan?
A plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training, or for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school for a designated beneficiary, such as a child or grandchild.
What is the main advantage of a typical 529 plan?
Earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary, such as tuition, fees, books, as well as room and board at an eligible education institution and tuition at elementary or secondary schools. Contributions to a 529 plan, however, are not deductible.
For distributions made from qualified tuition programs (QTPs or “529 plans”) after 2017, qualified education expenses may include no more than $10,000 paid for elementary or secondary school tuition incurred after 2017.
A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses aren’t used for both benefits.
Who controls the funds in a 529 plan?
Whoever purchases the 529 plan is the custodian and controls the funds until they are withdrawn.
Each 529 plan account has one designated beneficiary. What does that mean?
A designated beneficiary is usually the student or future student for whom the plan is intended to provide benefits.
Can I change the beneficiary of a 529 plan I have set up?
Yes. There are no tax consequences if you change the designated beneficiary to another member of the family.
Where can I find more information about 529 plans?
A good source is IRS Publication 970, Tax Benefits for Education.
I hope this will be helpful as you plan to make an excellent education available for your children!
Note: All information referenced from IRS Publication 970.
Mount de Sales Academy is a private Catholic school located in Macon, GA, which is sponsored and inspired by the Sisters of Mercy. Since 1876, MDS has served a diverse college-preparatory community of learners—students and teachers alike—who are poised to discover, challenged to innovate, and motivated to serve.