Pollyanna King, CPA, MST •
The new tax law is all the buzz for tax advisors. And toddler education is on my mind.
That’s because one snip-it of the tax law change is the expanded coverage under 529 plans to help families with planned education expenses. Starting on January 1, 2018 you can have a 529 savings plan with qualified distributions for lower education, such at the elementary or middle school levels. It’s true.
The new tax law is all the buzz for tax advisors. And toddler education is on my mind.
That’s because one snip-it of the tax law change is the expanded coverage under 529 plans to help families with planned education expenses. Starting on January 1, 2018 you can have a 529 savings plan with qualified distributions for lower education, such at the elementary or middle school levels. It’s true.
Previously the 529 savings plans were designated for tax advantaged savings towards post-secondary education. These plans offer investment growth and a tax advantage on that growth, if used towards college tuition. But now the distributions can be used towards the start (or nearly) at grade one. Add twelve more grades to the qualified expense category and the span of coverage just got much bigger.
It’s thanks to those who wished for a tax advantage across all levels of self-fund education that the definition of a 529 plan was amended to say “qualified higher education expense shall include a reference to expenses for tuition in connection with the enrollment or attendance at an elementary or secondary public, private or religious school.” PL 115-97
I’m not sure who has planned so well that their child’s first grade costs have deflected taxes, but I’m thinking. Maybe from birth, when your relatives want to share in the joy of your new baby’s arrival and they help by giving you something. Instead of them buying US savings bonds, you can direct those good intentions towards an investment in your child’s 529 savings plan. Start early they say.
Now that I’ve thought of it, how about the 529 plan you had in place for your oldest child who has decided not to go to college, can be shifted to cover private schooling for your youngest child. That works.
But hold up, there is of course a limitation. The 529 definition was further amended to say “the amount of cash distributions from all qualified tuition plans… shall in the aggregate, include not more than $10,000 in expense… incurred during the taxable year.” PL 115-97 This means you have a $10,000 cap on this new lower level education spending. Hopefully $10K covers it.
This is why it’s good to know how things have changed under the Tax Cuts and Jobs Act (PL 115-97) versus the “old” law of just 10 months ago. And there’s still so much more to talk about.
It’s thanks to those who wished for a tax advantage across all levels of self-fund education that the definition of a 529 plan was amended to say “qualified higher education expense shall include a reference to expenses for tuition in connection with the enrollment or attendance at an elementary or secondary public, private or religious school.” PL 115-97
I’m not sure who has planned so well that their child’s first grade costs have deflected taxes, but I’m thinking. Maybe from birth, when your relatives want to share in the joy of your new baby’s arrival and they help by giving you something. Instead of them buying US savings bonds, you can direct those good intentions towards an investment in your child’s 529 savings plan. Start early they say.
Now that I’ve thought of it, how about the 529 plan you had in place for your oldest child who has decided not to go to college, can be shifted to cover private schooling for your youngest child. That works.
But hold up, there is of course a limitation. The 529 definition was further amended to say “the amount of cash distributions from all qualified tuition plans… shall in the aggregate, include not more than $10,000 in expense… incurred during the taxable year.” PL 115-97 This means you have a $10,000 cap on this new lower level education spending. Hopefully $10K covers it.
This is why it’s good to know how things have changed under the Tax Cuts and Jobs Act (PL 115-97) versus the “old” law of just 10 months ago. And there’s still so much more to talk about.
RSS Feed