Qualified tuition plans, commonly known as 529 plans, have been expanded under the Tax Cuts and Jobs Act. More taxpayers can take advantage of saving for elementary and secondary education expenses tax-free. Below we outline the benefits of 529 plans and how to take advantage of the new law.
Tax Savings of 529 Plans
A 529 plan is a tax-advantaged savings plan that allows families to invest for future education costs. Earnings on the contributions build up tax-free as long as the funds are used for qualified higher education expenses at an eligible educational institution. Many states, including Missouri, allow for a tax deduction for contributions to a 529 plan. Currently Missouri allows for an $8,000 deduction for single filers and a $16,000 deduction for married filing joint filers.
Under the previous tax code, eligible educational institutions only included post-secondary education such as colleges and universities.
Under the Tax Cuts and Jobs Act, 529 plans are available for Kindergarten through 12th grade expenses, in addition to post-secondary education. Distributions for elementary or secondary school are limited to $10,000 per beneficiary per year. There are no annual limits for post-secondary education expenses. If a child attends a public, private or religious school that charges tuition, the child can take distributions from the 529 plan to cover these expenses up to the annual limit. These distributions, including earnings, are tax-free. This is a great way to help cut education costs.
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