The Tax Cuts & Jobs Act of 2017 expanded the ways parents and grandparents can use popular, state-sponsored 529 savings plans to pay for a child’s education.
Under previous law, 529 savings plans could be used only for higher education expenses. The revised law now allows withdrawals of up to $10,000 per year per beneficiary for K-12 education — giving parents the ability to cover the costs of private-school tuition.
Much like a Roth IRA, contributions to a 529 plan are post-tax and are not deductible from federal taxes. However, more than 30 states and the District of Columbia offer tax deductions or credits for contributions to 529 plans — though you may be restricted to investing in your home state’s plan to claim the benefit. Funds in a 529 plan grow federal-tax-free and will not be taxed when the money is withdrawn for qualified education expenses.
Some things to note: Some states may choose not to follow the federal law and disallow previously taken state contribution deductions and/or may impose state taxes and penalties on the earnings portion of withdrawals from a 529 plan for K-12 education. So, before you make any contributions to, or withdrawals from, a 529 plan for K-12 education, make sure you understand the tax consequences in your state of residence. A great resource for information on your state is www.savingforcollege.com.
Cardan Capital Partners can help you understand how a 529 savings plan fits into your financial landscape — and we welcome hearing from you.