New 529 Plan Rules

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psystal
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New 529 Plan Rules

Post by psystal » Mon Jan 08, 2018 9:38 am

The new tax plan alters 529 plans to extend applicability to "expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school."

Our daughter attends a private Montessori school and will move into their "Children's House" program next year at age 3. For those unfamiliar with Montessori programs, unlike traditional schools they group kids together in larger age groups. Our school does not have a traditional "kindergarten" program, but places kids aged 3-5/6 in the same classrooms until they move into what would generally be considered 1st/2nd grade in their "Elementary" program.

Is anyone aware of an established IRS definition of "elementary school?" Legislators and media have commented that the new 529 plans will allow expenses for K-12 programs, although not all private programs follow that structure. For tax planning purposes, I'm wondering how the IRS will treat non-traditional elementary programs. Will there be an age minimum for the student? Will we not be allowed to use the 529 until our daughter enters the what is termed the "Elementary" program at our school? Or will we be allowed to use the 529 right away, now that our daughter is in a program that includes kindergarten?

aceoperations
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Re: New 529 Plan Rules

Post by aceoperations » Mon Jan 08, 2018 9:49 am

Thank you for posting this. We have a toddler in private Montessori as well, who will be moving into the 3-6 yr age group. I'll be following this thread to see the responses from this excellent forum.

Rupert
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Re: New 529 Plan Rules

Post by Rupert » Mon Jan 08, 2018 10:01 am

There is a definition for purposes of Coverdell accounts. There is also a definition for what counts as "dependent care" vs. what counts as school, i.e., you can pay for daycare and extended care but not school using dependent care account funds. It's not yet clear which definition will apply for purposes of the new 529 rules or if the IRS will come up with a new definition altogether. There are other recent threads on this issue and, as far as I know, no one has yet identified a definition of "elementary school" in the new tax law. So we'll have to wait and see how the IRS decides to define it in the regulations.

onourway
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Re: New 529 Plan Rules

Post by onourway » Mon Jan 08, 2018 10:01 am

Same here. Our daughter would be moving into kindergarten this year in the private schools. Hoping to use the 529 to fund her Montessori tuition.

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gasdoc
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Re: New 529 Plan Rules

Post by gasdoc » Mon Jan 08, 2018 11:48 am

Just curious, when our daughter was kindergarten age, we were still working on funding her 529b fund, with the idea of having full funding by college year. People are now talking about using the funds for elementary school and later. How are people managing their 529's? Are they being funded by grandparents, and then used immediately? Are they being funded fully as infants, and then used starting in elementary school? Just curious.

gasdoc

wfrobinette
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Re: New 529 Plan Rules

Post by wfrobinette » Mon Jan 08, 2018 11:54 am

gasdoc wrote:
Mon Jan 08, 2018 11:48 am
Just curious, when our daughter was kindergarten age, we were still working on funding her 529b fund, with the idea of having full funding by college year. People are now talking about using the funds for elementary school and later. How are people managing their 529's? Are they being funded by grandparents, and then used immediately? Are they being funded fully as infants, and then used starting in elementary school? Just curious.

gasdoc
I don't see why one would use the 529 plan for early age schooling unless they get a state tax deduction on contributions. Now 529's that are maxed very early in life through gifting might be another story.

Spirit Rider
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Re: New 529 Plan Rules

Post by Spirit Rider » Mon Jan 08, 2018 12:21 pm

I don't think anybody knows how this is all going to shake out on these issues. Let's not have another situation like there was with pre-payment of property taxes. In this case there is no year ending deadline.

Without going into any specifics about this or any of the other provisions in the tax reform. It is quite likely that at least some states will decouple from some provisions.

So I wouldn't be making decisions now without knowing how the IRS will treat these gray areas and how your state might view certain deductions.

So if you are already paying private school expenses (including pre-K), continue doing so. If these provisions were going to cause you to enroll in some expensive private school, I would wait until we have clarification on both fronts.

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Chan_va
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Re: New 529 Plan Rules

Post by Chan_va » Mon Jan 08, 2018 12:30 pm

Does anyone know what the list of approved expenses are for a public elementary school?

Can I pay using a 529 for

- Books/ supplies?
- Camps when school is out of session (e.g. Easter break) ?
- Tutors/extra classes outside school?

jsdelia
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Re: New 529 Plan Rules

Post by jsdelia » Mon Jan 08, 2018 2:55 pm

wfrobinette wrote:
Mon Jan 08, 2018 11:54 am
I don't see why one would use the 529 plan for early age schooling unless they get a state tax deduction on contributions. Now 529's that are maxed very early in life through gifting might be another story.
Why not? The K-12 withdrawals are capped at $10K/year. If you put into a child's 529, as a couple, $28K/year from birth, then start taking out $10K at K, that funds both K-12 (at $10K per year) and college (large sums) very nicely.

It's definitely a 1%er benefit.

DIFAR31
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Re: New 529 Plan Rules

Post by DIFAR31 » Mon Jan 08, 2018 3:51 pm

Chan_va wrote:
Mon Jan 08, 2018 12:30 pm
Does anyone know what the list of approved expenses are for a public elementary school?

Can I pay using a 529 for

- Books/ supplies?
- Camps when school is out of session (e.g. Easter break) ?
- Tutors/extra classes outside school?
The new part of the 529 law only applies to "expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school." The three categories of expenses you list probably fall outside that scope.

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HueyLD
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Re: New 529 Plan Rules

Post by HueyLD » Mon Jan 08, 2018 4:21 pm

The answer depends on what type of student you have.
The provision modifies section 529 plans to allow such plans to distribute not more than $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the designated beneficiary at a public, private or religious elementary or secondary school. This limitation applies on a per-student basis, rather than a per-account basis. Thus, under the provision, although an individual may be the designated beneficiary of multiple accounts, that individual may receive a maximum of $10,000 in distributions free of tax, regardless of whether the funds are distributed from multiple accounts.
The provision also modifies section 529 plans to allow such plan distributions to be used for certain expenses, including books, supplies, and equipment, required for attendance in a registered apprenticeship program. Registered apprenticeship programs are apprenticeship programs registered and certified with the Secretary of Labor.
The provision also modifies the definition of higher education expenses to include certain expenses incurred in connection with a homeschool. Those expenses are (1) curriculum and curricular materials; (2) books or other instructional materials; (3) online educational materials; (4) tuition for tutoring or educational classes outside of the home (but only if the tutor or instructor is not related to the student); (5) dual enrollment in an institution of higher education; and (6) educational therapies for students with disabilities.

DIFAR31
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Re: New 529 Plan Rules

Post by DIFAR31 » Mon Jan 08, 2018 4:38 pm

HueyLD wrote:
Mon Jan 08, 2018 4:21 pm
The answer depends on what type of student you have.
The provision modifies section 529 plans to allow such plans to distribute not more than $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the designated beneficiary at a public, private or religious elementary or secondary school. This limitation applies on a per-student basis, rather than a per-account basis. Thus, under the provision, although an individual may be the designated beneficiary of multiple accounts, that individual may receive a maximum of $10,000 in distributions free of tax, regardless of whether the funds are distributed from multiple accounts.
The provision also modifies section 529 plans to allow such plan distributions to be used for certain expenses, including books, supplies, and equipment, required for attendance in a registered apprenticeship program. Registered apprenticeship programs are apprenticeship programs registered and certified with the Secretary of Labor.
The provision also modifies the definition of higher education expenses to include certain expenses incurred in connection with a homeschool. Those expenses are (1) curriculum and curricular materials; (2) books or other instructional materials; (3) online educational materials; (4) tuition for tutoring or educational classes outside of the home (but only if the tutor or instructor is not related to the student); (5) dual enrollment in an institution of higher education; and (6) educational therapies for students with disabilities.
The homeschool language did not make it into the final law, and I'm not sure that the apprenticeship language did either.

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HueyLD
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Re: New 529 Plan Rules

Post by HueyLD » Mon Jan 08, 2018 4:55 pm

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—

‘‘(A) expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school, and

‘‘(B) expenses for—

‘‘(i) curriculum and curricular materials,

‘‘(ii) books or other instructional materials,

‘‘(iii) online educational materials,

‘‘(iv) tuition for tutoring or educational classes outside of the home (but only if the tutor or instructor is not related (within the meaning of section 152(d)(2)) to the student),

‘‘(v) dual enrollment in an institution of higher education, and

‘‘(vi) educational therapies for students with disabilities, in connection with a homeschool (whether treated as a homeschool or a private school for purposes of applicable State law).’’."

Spirit Rider
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Re: New 529 Plan Rules

Post by Spirit Rider » Mon Jan 08, 2018 5:02 pm

DIFAR31 wrote:
Mon Jan 08, 2018 4:38 pm
The homeschool language did not make it into the final law, and I'm not sure that the apprenticeship language did either.
The apprenticeship was in the House bill, but never made it into the Senate bill which was the basis for the conference report 529 language.

DIFAR31
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Re: New 529 Plan Rules

Post by DIFAR31 » Mon Jan 08, 2018 5:08 pm

HueyLD wrote:
Mon Jan 08, 2018 4:55 pm
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—

‘‘(A) expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school, and

‘‘(B) expenses for—

‘‘(i) curriculum and curricular materials,

‘‘(ii) books or other instructional materials,

‘‘(iii) online educational materials,

‘‘(iv) tuition for tutoring or educational classes outside of the home (but only if the tutor or instructor is not related (within the meaning of section 152(d)(2)) to the student),

‘‘(v) dual enrollment in an institution of higher education, and

‘‘(vi) educational therapies for students with disabilities, in connection with a homeschool (whether treated as a homeschool or a private school for purposes of applicable State law).’’."
None of the paragraph (B) stuff is in the law. Perhaps you can provide a link to the material you are quoting?

Rupert
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Re: New 529 Plan Rules

Post by Rupert » Mon Jan 08, 2018 5:25 pm

The fact that people are quoting sections of bills that never became law is support for the conclusion that you should wait for new IRS guidance (regulations) before acting on this matter. The media is doing the same thing. There's a lot of bad information and conjecture out there.

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HueyLD
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Re: New 529 Plan Rules

Post by HueyLD » Mon Jan 08, 2018 5:44 pm


DIFAR31
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Re: New 529 Plan Rules

Post by DIFAR31 » Mon Jan 08, 2018 6:22 pm

That's a report (and the bill language) for the conference version as it was originally voted on, and passed, by the House. Due to various objections in the Senate, and after a ruling by the Senate parliamentarian, the 529 changes as they pertain to homeschooling were removed and the bill was passed by the Senate. The revised bill was then sent back to the House for a revote, and it passed (again). A day or two later it was signed into law.

Here's the final bill as voted on by the House:

https://www.congress.gov/bill/115th-con ... ill/1/text

The 529 changes are in Sec. 11032 at the end of Part IV - Education.


Here's a WSJ brief explanation of what happened:

https://www.wsj.com/livecoverage/tax-bi ... 1513748902

miamivice
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Re: New 529 Plan Rules

Post by miamivice » Mon Jan 08, 2018 6:50 pm

jsdelia wrote:
Mon Jan 08, 2018 2:55 pm
wfrobinette wrote:
Mon Jan 08, 2018 11:54 am
I don't see why one would use the 529 plan for early age schooling unless they get a state tax deduction on contributions. Now 529's that are maxed very early in life through gifting might be another story.
Why not? The K-12 withdrawals are capped at $10K/year. If you put into a child's 529, as a couple, $28K/year from birth, then start taking out $10K at K, that funds both K-12 (at $10K per year) and college (large sums) very nicely.

It's definitely a 1%er benefit.
After tax money is put in (earnings are tax free).

In the case of an OP, who has a 3 year old, I agree that I don't think there is a lot of advantage of putting in after tax money at birth and letting it earn money in the stock market for a whopping three years, and then withdrawing it. (other than the state tax deduction).

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GreatOdinsRaven
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Re: New 529 Plan Rules

Post by GreatOdinsRaven » Tue Jan 09, 2018 9:33 am

It’s my understanding that up to $10,000 per year from a 529 account can be applied to qualified K-12 expenses.

Let’s say that a child has two separate 529 plans. One started by a father and the other started by a mother. The child will attend private school (K-12) and the tuition is $20,000 per year.

Is the $10,000 limit a limit per 529 plan or combined individual limit? Can both mom and dad contribute $10,000 each toward the tuition bill, essentially paying for all of the $20,000 bill?
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Rupert
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Re: New 529 Plan Rules

Post by Rupert » Tue Jan 09, 2018 10:15 am

GreatOdinsRaven wrote:
Tue Jan 09, 2018 9:33 am
It’s my understanding that up to $10,000 per year from a 529 account can be applied to qualified K-12 expenses.

Let’s say that a child has two separate 529 plans. One started by a father and the other started by a mother. The child will attend private school (K-12) and the tuition is $20,000 per year.

Is the $10,000 limit a limit per 529 plan or combined individual limit? Can both mom and dad contribute $10,000 each toward the tuition bill, essentially paying for all of the $20,000 bill?
The $10K limit is per beneficiary, not per plan or account owner.

Ichabob
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Re: New 529 Plan Rules

Post by Ichabob » Tue Jan 09, 2018 9:27 pm

Sec. 11032(a)(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.".


As it's a state that administers education, I'd look at the state definition.
For example ...
Va. Code § 22.1-1:
"Elementary" includes kindergarten.
"Elementary and secondary" and "elementary or secondary" include elementary, middle, and high school grades.

txranger
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Re: New 529 Plan Rules

Post by txranger » Wed Jan 10, 2018 2:08 am

Does this also apply for overseas/non-US schools for American expats?
Tnx

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