529 Plans: Not Just for College Anymore

Starting in 2018, 529 plans can be used to pay tuition expenses for elementary and secondary schools, thanks to the Tax Cuts and Jobs Act.

From the conference report:

The [agreement] modifies section 529 plans to allow such plans to distribute not more than $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the designated beneficiary at a public, private or religious elementary or secondary school.

Moreover:

This limitation applies on a per-student basis, rather than a per-account basis. Thus, under the provision, although an individual may be the designated beneficiary of multiple accounts, that individual may receive a maximum of $10,000 in distributions free of tax, regardless of whether the funds are distributed from multiple accounts.

Finally:

Any excess distributions received by the individual would be treated as a distribution subject to tax under the general rules of section 529.

The original version of the Tax Cuts and Jobs Act included a provision permitting 529 distributions for homeschool expenses. However, after a last minute objection on procedural grounds, this language was stricken.

The new rule is effective in 2018. 

The full text of the provision is as follows:

SEC. 11032. 529 ACCOUNT FUNDING FOR ELEMENTARY AND SECONDARY EDUCATION.

(a) IN GENERAL.

(1) IN GENERAL.—Section 529(c) is amended by adding at the end the following new paragraph:

(7) TREATMENT OF ELEMENTARY AND SECONDARY TUITION.—Any reference in this subsection to the term ‘qualified higher education expense’ shall include a reference to—

(A) expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school, and

(B) STRICKEN

(2) LIMITATION.—Section 529(e)(3)(A) is amended by adding at the end the following:

The amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to a beneficiary during any taxable year shall, in the aggregate, include not more than $10,000 in expenses described in subsection (c)(7) incurred during the taxable year.

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions made after December 31, 2017.

For more on the Tax Cuts and Jobs Act, click here.

Source: Tax Cuts and Jobs Act, pp. 75 – 76; Joint Explanatory Statement of the Committee of Conference, pp. 60 – 64 (pdf)

Posted by Joel D. Roettger, JD, LLM, EPLS

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