Changes in the 529 Savings Plans : GKM Inc – Blog

Changes in the 529 Savings Plans

Posted by:   |  Sep 28, 2018  | Post comments

529 education savings plans are state-sponsored savings plans with tax advantages making it easier for savings towards education.
The main advantage is that earnings on the investments in a 529 account grow tax-free and can be withdrawn free from federal tax and also state tax if used for qualified education expenses.
Before 2018, qualified education expenses were limited to post-secondary education expenses, such as tuition, books, and fees for students attending college or vocational school.
The 2017 overhaul of the federal tax code added K-12 tuition to the list of qualified expenses. Specifically, up to $10,000 per student per year can be withdrawn free from federal tax for tuition expenses at a public, private, or religious elementary or secondary school, beginning 2018.
There may be state tax consequences, however, for a K-12 withdrawal depending on where you live. The laws of your state determine the state tax treatment of your 529 account, and some states may need to change their laws before K-12 withdrawals can be treated as a qualified expense for state tax purposes.
A 529 account can be opened for anyone – your child, grandchild, relatives, family friend et al, and there is no age restriction for the beneficiary. There are also no income caps on who can contribute – hence even high-income individuals can open and fund 529 accounts. Multiple accounts can be opened for the same beneficiary. Your state may offer a state tax deduction for contributions you make to its plan. Many 529 plans allow more than $300,000 as contributions per beneficiary. There is also a unique gift tax feature that allows individuals to contribute up to 5 times the annual gift tax exclusion amount per beneficiary in a single year without triggering the federal gift tax.
The annual gift tax exclusion for 2018 is $15000 ($150000 per beneficiary for married couples) without incurring the federal gift tax.
Please consult your expert tax advisors at GKM to learn whether there may be state tax consequences in your situation.