With the recently-passed “Tax Cuts and Jobs Act” of 2017, Congress has expanded 529 savings plans to now cover elementary and secondary school tuition, school-related expenses such as tutoring, online educational materials, and books, and educational therapies for students with disabilities. Each beneficiary under a 529 plan would be allowed to receive up to $10,000 per year in tax-free distributions to cover such expenses.
Before now, the only vehicle that offered tax-free savings for elementary and secondary school costs was a Coverdell Education Savings Account. These accounts come with limitations that do not apply to 529 plans. For instance, in order to qualify for a Coverdell plan, the plan contributor must earn less than $110,000 per year ($220,000 if married, filing jointly) and the annual contribution limits are $2,000 per year, per beneficiary. 529 plans are not encumbered with these restraints.
There is no requirement that a separate 529 plan must be used for elementary or secondary school costs. Thus, if you already have a 529 plan, you may want to discuss with your plan administrator whether it makes sense to start taking distributions for pre-college expenses, especially if your child suffers from a learning disability or requires extra-curricular learning assistance. If you have not set up a 529 plan for your beneficiary, the recent changes to the law now provide even greater incentive and flexibility to do so.
Daniel Nevis is a partner at the law firm of Miller Morton Caillat & Nevis, LLP, located in San Jose, California. If you have questions for Daniel about this article, please email him at firstname.lastname@example.org
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