(During 2018, when the Texas Legislature is not in session, we hope to focus on some of the legislation being considered by the United States Congress which may be of interest to our CFRW members.)
Final Amendment to Tax Reform Law Benefits Children’s Education
By way of background, “529 Plans” refer to the portion of the U.S. Tax Code which provides for the establishment of “qualified tuition programs” which permit families to invest money in accounts which can grow tax-free for school tuition and other educational expenses. For example, Texas offers two 529 plan programs: The Texas Tuition Promise Fund and the Texas College Savings Plan.
Up until the new Tax Cuts and Jobs Act passed, these tax incentives were limited to college-level education. In December 2017, an amendment was filed to the Senate’s version of the tax reform bill which provides for the expansion of 529 plans to also cover public, private and religious K-12 elementary and secondary school programs. The amendment was passed and ultimately incorporated into the new law. (It should be noted that the amendment originally sought to also cover homeschool students but was not successful in this regard.) The measure was observed as “helping working class and middle-income families save and prepare for their children’s educational expenses.”
Up to $10,000 per year of savings from qualified plans may be spent for children in the K-12 grade categories. The section of The Tax Cuts and Jobs Act addressing 529 Qualified Tuition Programs follows this article. Any adjustments to the existing Texas 529 plan programs to take into account the new law have not yet occurred and should be monitored.
As many of us continue to work on our personal and family goals for 2018 and beyond – and the budgeting to make them happen - the expanded 529 plan programs give us the added advantage of a new tool and resource.
Gail Schubot, CFRW Legislative Chair
January 22, 2018
Excerpt from The Tax Cuts and Jobs Act:
SEC. 11032. 529 account funding for elementary and secondary education.
(a) In GENERAL. —
(1) IN GENERAL.—Section 529(c) is amended by adding at the end the following new paragraph:
“(7) TREATMENT OF ELEMENTARY AND SECONDARY TUITION. —Any reference in this subsection to the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”.
(2) LIMITATION.—Section 529(e)(3)(A) is amended by adding at the end the following: “The amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to a beneficiary during any taxable year shall, in the aggregate, include not more than $10,000 in expenses described in subsection (c)(7) incurred during the taxable year.”.
(b) Effective DATE. —The amendments made by this section shall apply to distributions made after December 31, 2017.