In the following podcast, Matt Keefer a Principal in GSG’s Tax Services, discusses recent changes to 529 plans.
A 529 plan, also known as a qualified tuition program, is designed for taxpayers to save on future education costs. A tax-favored program, it allows individuals to either prepay or contribute to an account for the qualified education of the expenses of a designated beneficiary. Plans are run by the state or the qualified educational institution.
Most states have their own potential 529 plan where you can contribute, and in Maryland, you can choose between an investment savings plan or a prepaid tuition plan.
An investment savings plan is similar to a 401(k) plan where you make contributions and your funds grow tax free and remain tax free when you withdraw (assuming you use the investment towards qualified education expenses).
The prepaid tuition plan is also tax free, but you’re prepaying the tuition and fees based on today’s current rates, and you’re not increasing earnings on the plan like you would investment plans.
Recently, there have been major changes to 529 plans. After the Tax Cuts and Jobs Act (TCJA) was passed in December of 2017, 529 plans can now be used for elementary and secondary school tuition as qualified education expenses.
Individuals are now allowed to use up to $10,000 per beneficiary, per year for both elementary and secondary expenses. This includes private and public K-12 schools. Previously, qualified education expenses were only eligible for post-secondary schools and college institutions.
Listen to our podcast to learn more about the biggest benefits a 529 plan offers, how to capitalize on the most beneficial deduction, and important compliance components you will need to acknowledge.
If you have any questions about the recent changes to a 529 plan and how they affect your education savings plan, contact our tax professionals today.Categories: Tax, Higher Education