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Feb 22, 2018

How Will the New Tax Changes Impact College Planning?

Sponsored Content provided by Brett Tushingham - CFP®, CCFS®, Managing Member & CCO, Tushingham Wealth Strategies

As you probably know by now the tax code looks dramatically different when compared to last year. 

The recent changes will impact many areas such as tax brackets, deductions and, yes, college planning. 

Let’s look at a few of the changes.      

529 Savings Plans

529 plans are state-sponsored savings vehicles that allow assets to grow tax-free. Distributions are also tax-free when used for qualified educational expenses. Plan beneficiaries can be changed and the impact on financial aid is minimal. This flexibility and the tax benefits make them ideal college savings vehicles.

The new tax reform now allows 529 plan distributions to be used tax-free (federally) for private elementary and secondary school expenses (K-12). Before this, tax-free distributions were only allowed for qualified higher education expenses (college). Each student will be able to take up to $10,000 per year for public, private and religious schools.

Before taking any 529 distributions for K-12 expenses, you should check with your state to determine if they consider K-12 expenses to be “qualified.” If they are not considered qualified, then the state could assess state income tax and penalties on the earnings portion of the distributions. 

Currently, the North Carolina General Assembly has not decided on this matter. That being said, North Carolina residents should wait for a resolution before tapping their 529 accounts for K-12 education expenses.          

529 ABLE Plans

The new tax changes also allow for tax-free rollovers of 529 Savings accounts to 529 ABLE accounts, as long as the beneficiary is the same person or member of the same family as the original 529 Savings account. Rollovers will be limited to the annual contribution limit which will be $15,000 in 2018. Additional contributions are allowed under certain circumstances. 

ABLE accounts are similar to 529 Savings accounts, as they offer tax-free growth and distributions are tax-free when used for qualified disability expenses.  You can save up to $100,000 without impacting your eligibility for government programs, such as Medicaid    

All in all, the changes should encourage families to save more and choose 529 accounts over Coverdell accounts as the preferred education savings vehicle. 

Saving is just one part of a sound college plan. Remember to also incorporate “late-stage” planning strategies, such as college selection, tax aid, financial aid and wealth management when paying for college.  The time invested will be well worth it.       

At Tushingham Wealth Strategies, our goal is to help you proactively oversee all of your financial affairs by serving as your “Personal CFO” and fiduciary, so that you may live your ideal life worry free. As part of our "Personal CFO" service we help families develop "late stage" college planning strategies so that they can save money on college, protect their retirement assets and help their children graduate with minimal student loans. This is why our “Personal CFO” services will help you integrate college and retirement planning into one strategy.


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