As we mentioned in an earlier post, Congress made changes to 529 education plans when it passed The Tax Cuts and Jobs Act in December 2017.
It is now possible to use a 529 plan to pay up to $10,000 per year, per student for private school tuition for kindergarten through 12th grade. This is good news for families paying to educate children in private schools. Funds taken from a 529 plan will not be subject to federal taxes when withdrawn for private school tuition.
However, you should be aware that it is not clear that Oregon will follow the federal rules regarding 529 education savings plans. If you are using the Oregon College Savings Plan, the State of Oregon has not indicated whether withdrawals for K-12 private school will avoid Oregon taxes and penalties.
As you may know, Oregon residents can deduct contributions to the Oregon College Savings Plan. The deduction was $4,660 for married couples filing jointly and $2,330 for all others in 2017. Withdrawals from the Oregon plan are tax-free, if they are used for qualified higher education expenses. From the Oregon College Savings Plan website:
“Qualified Higher Education Expenses may include tuition, certain room and board expenses in addition to any fees, books, supplies and equipment required for enrollment and attendance at an eligible educational institution, which includes most post-secondary institutions. Computers and related technology such as internet access fees, software or printers used primarily by the designated beneficiary when enrolled at an eligible educational institution are also qualified education expenses.
If the beneficiary is a special needs student, any additional costs required for enrollment or attendance to meet those needs will also be treated as a qualified higher education expense.”
This description does not refer to K-12 private schools. So, owners of Oregon College Savings Plan accounts should not plan to use funds in the plan to pay for private school until the Oregon State Legislature provides more guidance on the matter.
Some states have indicated they will not follow the federal rules and that withdrawals from 529 plans in those states to pay for tuition at K-12 private schools will negate tax deductions taken previously.
Let’s see what Oregon decides.
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