Thanks to the new federal tax reform legislation, big changes are coming to the ways that parents can save for their children’s educational futures totally tax-free with 529 plans— think of them as a Roth IRAs or Health Savings Accounts, but for education expenses.
Keeping up with what all the legalese can be a serious chore for parents, however. As Elisabeth Leamy writes in The Washington Post:
The federal government created 529s, but the 50 states plus the District of Columbia administer them. And not all jurisdictions have tweaked their rules to align with the new federal law. Some states’ 529 laws say that you may withdraw funds tax-free only for “qualified college costs.” In other words, if you prematurely withdraw 529 gains to pay for K-12 education, that money could be subject to income tax and a 10 percent penalty. You could even have to pay back any state tax deduction you received when you deposited the money. Ouch.
A handful of states have already announced that they will go along with the federal change and consider K-12 withdrawals a qualified 529 expense. They are Alaska, Delaware, Georgia, Kentucky, Maryland, Mississippi, Missouri, Nevada, South Carolina, Tennessee, Utah, Virginia, West Virginia and Wisconsin, according to Savingforcollege.com. The site says it will update this list as more states sign on, so check back. Other states may be aligned with the feds already simply because their laws are more vaguely worded and don’t specify the word “college.” However, additional states, such as Iowa, Maine and Nebraskahave warned that they may have to introduce 529 legislation before residents can be assured of favorable tax treatment.
We believe that freedom of choice in education is a right that parents deserve in order to ensure the best possible future for their kids. And Congress’ expansion of 529 savings plans to include K-12 education costs is a crucial step forward in that great effort. Make sure you’re informed on all the ways your family can take advantage of these important changes!
Click here to read the whole story via The Washington Post.