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Contributing to a 529 Plan?

February 12, 2018
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The New Tax Law Adds Flexibility

With all the talk of federal tax reform lately, you may have missed hearing about changes that expand the benefits available to investors who save for college using 529 savings plans.

Prior to the signing of the new tax bill, 529 withdrawals were tax-free for any funds spent on qualified higher education – including tuition and room and board, as well as computer software and equipment. Under the new tax law – effective January 1, 2018 – parents who send their children to private elementary, middle, and high schools are able to use up to $10,000 per year from 529 plans to pay for K-12 tuition expenses. Distributions can be made from more than one 529 plan, whether owned by the student’s parents or other family members, as long as the total distribution for each beneficiary does not exceed $10,000. This change gives more families the opportunity to save and allocate tax-free dollars toward private, public, or religious schools. *

Contributions to 529 plans are typically considered completed gifts for federal tax purposes. On January 1 of this year, the IRS also changed the annual gift exclusion amount, raising it to $15,000.

Every dollar saved today for college is a dollar that won’t have to be borrowed in the future. In addition to federal tax benefits, your state may offer state income tax deductions for contributions, making it even more rewarding to contribute to a 529 plan. For example, the state of Ohio recently doubled the 2018 state income tax deduction for 529 contributions. More than 30 states currently offer income tax benefits – you can get the details for your state at www.savingforcollege.com.

In the meantime, please give us a call if you have any questions or would like to discuss your education or college saving plans for your children or grandchildren – in Ohio or elsewhere. We are happy to help!

 

* “New Tax Law Brings Big Changes to 529 Plans,” www.savingforcollege.com, December 22, 2017.

SJS Investment Services does not provide tax advice; please consult your tax professional for specific advice. This material has been prepared for informational purposes only.