College Savings (529) Plans: The Benefits and New Rules

John Saccardi, CPA explains the recent changes to 529 Plans.

College Savings Plans (529 Plans) can provide great tax benefits to people trying to save for their children’s or grandchildren’s college education.  These plans can be set up for just about anybody though (a relative, friend or yourself)!

Prior to the Tax Cuts and Jobs Act (TCJA), 529 Plans already offered the following benefits:

The new tax law expands the tax-free treatment of distributions for amounts of up to $10,000 per year per beneficiary for qualified K-12 expenses.  This offers savings opportunities for families sending their children to private K-12 schools if they are not already maximizing their contributions to take full advantage of the state tax deduction/credit.

In conjunction with the new tax law, Ohio has increased the deductible contribution limit starting in 2018. The prior limit was $2,000 per beneficiary; beginning in 2018 the limit has been increased to $4,000 per beneficiary.

If you are contributing to a 529 plan be aware that there may be gift tax consequences if your contributions exceed the annual gifting limit of $15,000 per beneficiary starting in 2018.  There are ways to gift more in a specific year though – contact us to discuss.

For a list of FAQ from the IRS, click here.

In order to make sure you are getting the most benefit from your 529 Plan, and to wade through the swampy terrain of the new tax law, it is always best to get in touch with your tax advisor.