Following the enactment of the Tax Cuts and Jobs Act of 2017 (“TCJA”) late last year, much of the focus was on the tax cuts provided to business owners and individuals alike. However, one of the lesser publicized changes the TCJA made actually impacts all taxpayers who are currently saving for their children’s college education through 529 College Savings Plans.
529 Plans can now be used for students before they reach college by making distributions tax-free for private elementary and secondary school tuition expenses (for up to $10,000 in distributions per student each year). While this is welcome news for families electing to send their children to private or religious schools, it is important to note that only tuition at elementary or secondary schools was added to the definition of “qualified higher education expenses” vs. the much broader definition of such expenses that the law permits distributions to be made for the benefit of college students. Therefore, unlike for students enrolled in college, the purchase of books, supplies or other required equipment (i.e. a computer) does not fall within the permitted use of a 529 plan for students of elementary or secondary schools.
While the expansion of the use of 529 Plans was included in the TCJA passed in December of 2017, Ohio did not formally approve that expenditures for private elementary and secondary school tuition expenses are considered tax-free distributions from a state income tax standpoint until March of 2018 when Senate Bill 22 was signed into law. Fortunately, Ohio is not one of the several states who are considering taxing such distributions and elected to align the income tax treatment of payments made for tuition expenses under federal and state law.
If you have not reviewed your estate plan recently to understand all of the various ways you might be able to take full advantage of recent changes in the law to benefit your family, contact us to set up an appointment to discuss how a few simple changes might provide an enormous tax benefit