fbpx

The tax reform legislation signed into law on December 22, 2017, brings several important enhancements to 529 college savings plans.

Beginning on January 1, 2018, account owners may take tax-free withdrawals up to $10,000 annually from their accounts for tuition expenses at public, private, or religious schools. This provision applies to elementary, middle, and high schools.

Payments for K-12 tuition expenses cannot exceed a combined total of $10,000 per beneficiary from all qualified tuition programs. The account owner is responsible for monitoring the $10,000 limit and for maintaining adequate records, such as receipts and other documentation.

Under the new legislation, 529 account owners also can roll over their savings to an Achieving a Better Life Experience (ABLE) account owned by the same beneficiary or member of the beneficiary’s family. ABLE accounts benefit people who become blind or disabled before age 26, and the assets don’t limit the individuals’ access to Medicaid or Supplemental Security Income benefits. Withdrawals from ABLE accounts are tax-free when used for expenses including housing, legal fees, and employment training.

A rollover from a 529 account will count toward the annual ABLE account contribution limit, which increased to $15,000 on January 1, 2018. However, any rollover amount in excess of $15,000 will be included in the beneficiary’s income.

Rollovers from some 529 accounts to an ABLE account may be subject to recapture of all previously claimed state tax credits or deductions in the year the rollover is made. However, taxpayers may be able to claim a state income tax credit for contributions to an account in another state’s ABLE program. You should consult with your tax advisor.

PLEASE SEE important disclosure information at www.springwaterwealth.com/blog-disclosure/.