New Tax Law Update – 529 Plans

Posted By: Michelle Shea News & Updates,
Now that the new tax reform bill has become law, it is time to dive into the details and learn how these changes will affect our industry – both positively and negatively. In the past few communications we’ve addressed the items that had at one time been on the chopping block (tuition remission/employee educational assistance, tax-exempt bonds, employer provided housing and charitable giving). What we haven’t addressed is a new benefit from the law for independent schools in the area of 529 plans.
529 college savings plans began in the mid-late 90s and immediately gained popularity as a tax-free way to save for higher education expenses. The change in the new tax law has expanded the definition of “qualified expense” for 529 plans to include tuition-based schools.  Independent schools (along with religious or public) that charge tuition will now be considered an eligible expense and families can use up to $10,000 per student per year from their 529 savings. More details are being worked out in the areas of rules, definitions, and when eligibility begins, but this is a helping hand to all our schools.
Our friends at NAIS have recently issued a full legal advisory on this topic. If you are an NAIS member school, you can find that document here (login required).
Since most 529 plans are state sponsored, each state has varying restrictions and regulations so we encourage you to use the resources below to learn more about the specifics to each state plan. There can be secondary benefits to 529 plans in the area of a state income tax deduction, and the benefits continue when you look at it from an estate planning perspective since grandparents and other family members may also contribute to 529 plans.

Helpful resources:

What can schools do now?

  • Prepare for the possibility of a new IRS filing requirement.
  • Learn about your state’s 529 plan documentation requirements.
  • Keep abreast on any state-level advocacy for state law changes pertaining to 529 plans.
  • Think about how to handle financial aid decisions now that 529 savings are eligible funds for tuition expenses.
  • Communicate internally to ensure school personnel are not providing any type of tax advice.
  • Develop a communication plan for families AFTER these steps have been taken.