The Tax Cuts and Jobs Act (TCJA) has made some changes to qualified tuition programs (commonly referred to as 529 plans) which expands the use of 529 plans to expenses for grades kindergarten through grade 12. The new law affects distributions made in 2018 and later years.
A 529 plan distribution is tax-free if it is used to pay “qualified education expenses” of the beneficiary/student. Previously, qualified education expenses included expenses paid only for higher education (post high school education).
The new law now allows expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school. There is a limit of $10,000 in total distributions per student, per year for these newly allowed expenses. The limit for higher educational expenses (post high school) are not limited other than by the amount of actual expenses.
Although the IRS has not, as of the date of this post, issued more specific regulations to define the new allowable expenses, the IRS intends to define the expenses consistent with the definition applicable for Coverdell education savings accounts. Under this definition, the following expenses would be expected to be non-taxable distributions from the 529 plan:
1.Expenses for tuition, fees, academic tutoring, books, supplies and other equipment that are incurred with the enrollment or attendance of the beneficiary as an elementary or secondary school student at a public, private or religious school.
- Expenses for room and board, uniforms, transportation, and supplementary items and services that are required or provided by a public, private, or religious school in connection with the enrollment or attendance of the beneficiary at the school
- Expenses for the purchase of computer technology or for internet access and related technology if these are to be used by the beneficiary/student during any of the years the beneficiary/student is in school.
- The term “school” includes any school that provides elementary education or secondary education (kindergarten through grade 12), as determined by state law.