A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
Recent Changes
The last major change to Federal 529 Plan requirements and limitations happened in 2019 with the SECURE Act. Under the SECURE Act, approved in December 2019, up to $10,000 of 529 funds can now be used for:
- Qualified student loan repayments
- K-12 annual tuition expenses at public, private, or religious schools
- Approved apprenticeships (apprenticeship must be registered with the federal Labor Department.)
The changes also allow up to another $10,000 to be used to repay student loans held by each of the beneficiary’s siblings. (If, say, a student had two siblings with student loans, another $20,000 total could be withdrawn, without penalty, to pay their debt.)
A few states have also made changes to their state-sponsored 529 plans. A few examples include:
Illinois
Starting 2021, babies born in Illinois will automatically receive a college savings fund. An automatic $50 deposit will be made into a college savings account which families must claim for their child by their 10th birthday.
Georgia
In 2020 Georgia doubled their tax deductions when savings are put into a child’s 529 savings plan. The deductions for single filers went from $2,000 to $4,000 per beneficiary, while the deductions for married/joint filers doubled from $4,000 to $8,000. If you are taking advantage of Georgia’s Path2College 529 plan, then this means more money in your pocket through these tax deductions.
Colorado
Colorado‘s Working Families College Savings Act, originally enacted in 2019, has been extended for ten additional years by that state’s legislature. The act provides a way for Colorado employers to boost their employees’ CollegeInvest 529 savings accounts with tax credits. The original legislation ensured the program would continue until 2022, but it will now be effective through 2032.
The plan offers a Colorado tax credit for employers who make contributions to CollegeInvest savings plans owned by their employees. The available tax credit is 20% of the amount contributed to a CollegeInvest 529 account, up to $2,500 per employee. Within that scope, employers will have the flexibility to design specific benefit strategies that best suit their business needs, and the needs of their employees.
Upcoming Changes
Starting in 2022, there will be some leeway granted to non-parent owned 529 plans. Specifically, money saved in a non-parent owned 529 account does not affect a student’s financial aid eligibility while sitting in the account. Prior to this change, distributions from grandparent-owned accounts were viewed as taxabl income for the grandchild, which often negatively affected financial aid considerations. After this change, these distributions will no longer be considered income.
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