The Tax Cuts and Jobs Act Expands 529 Plan Provisions

The Tax Cuts and Jobs Act (TCJA) has made some changes to qualified tuition programs (“QTPs,” also commonly known as “529 plans”). These changes expand the use of 529 plan distributions after 2017.

As you may know, individuals are able to make a contribution to a 529 plan on behalf of a designated beneficiary, and the earnings on the contribution accumulate in the plan tax-free. A distribution is tax-free if it is used to pay “qualified higher education expenses” of the beneficiary (student).

Before the enactment of the TCJA, tuition for elementary or secondary schools was not considered a “qualified higher education expense”. But under the TCJA, qualified higher education expenses now include expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.

There is a limit to how much of a distribution can be taken from a 529 plan for these expenses. The amount of cash distributions from all 529 plans per single beneficiary during any tax year cannot, when combined, include more than $10,000 for elementary school and secondary school tuition incurred during the tax year.

Before making any final decisions, we always recommend that you consult with your tax advisor to review options based on your situation. Please contact us if you have any questions as you navigate 2018 tax planning.