The Tax Cuts and Jobs Act of 2017 expands 529 education plans in 2018 to include elementary and high school expenses. This is welcome news for parents—especially those paying private school tuition—who are taking advantage of 529 savings plans to save for their children’s education!
Until now, 529 plan assets could only be used to pay expenses related to college. As of January 1, 2018, 529 plans have been expanded to include elementary and high school expenses.
That means, in addition to using the plan to pay for college expenses, you can withdraw up to $10,000 per year from a 529 plan to pay for elementary and high school expenses at public, private or religious schools. Qualified expenses include tuition, enrollment fees, books, supplies, housing, online educational materials, tutoring or classes outside of the home, and educational therapies for students with disabilities,
There is no specific dollar limit on the amount of contributions that can be made to a 529 plan except that, in total, they should not exceed the amount needed for qualified education expenses. Many clients make contributions to plans for their children or grandchildren within the limits of the annual gift-tax exclusion, which, in 2018, is $15,000. To get the maximum tax-free advantage, you may give up to five years of gifts in a one-time contribution and treat it, for tax purposes, as if it were given over five years. You just must be sure that you don’t give anything in the subsequent five years. In 2018, that amount is $75,000 per person.
As an estate planning tool, plan contributions are treated as completed gifts and are removed from your taxable estate (even though they are revocable). So contributing five years’ worth in one year removes the money from your estate faster. Furthermore, beginning in 2018, such contributions will not count against your lifetime gift-tax exemption of $5.6 million.
The website savingforcollege.com is a great resource for educating yourself on saving for college. Castle Wealth Management utilizes iShares 529 plans because of their tax-efficient, low-cost offerings. As a firm, we believe that charging high fees on college savings accounts is not in the clients’ best.