The tax code and you: Saving for school

How the 2017 federal tax reform can help families with their 529 plans this year

22 Mar 2019

For many families, one of the most significant changes of the 2017 federal tax reform is the expanded role of 529 plans to fund a child or grandchild's education—not just college, but now K-12 in some states as well.

Families can now withdraw up to $10,000 per student per year from these tax-advantaged savings plans to help pay tuition at a public, private or religious elementary or secondary school. Previously, these plans could only be used for college, trade or graduate school.

Under the tax rules, families may now enjoy far more flexibility when it comes to how they use their 529 savings and how much they choose to fund these vehicles, according to Rebecca Sterling, Senior Wealth Strategist, UBS Advanced Planning.

"This is a great option for many families," she said in a UBS On-Air interview.

In addition, under the federal tax rules, in the 2019 tax year, an individual can make annual contributions to a 529 plan up to $15,000 ($30,000 for a married couple)—the federal gift tax annual exclusion for 2019—and may front-load up to five years of federal gift tax annual exclusions. This means that an individual could potentially contribute up to $75,000 ($150,000 for a married couple) towards a 529 plan this year and treat the gift as though it were made ratably over the current year and subsequent four years.

That said, it's important to understand that 529 plans are sponsored by individual states, and each state determines the maximum contributions, eligible investments and tax advantages for its own program; therefore, state plans could vary greatly in their tax benefits, investment options, costs and features.

Also keep in mind that you're not required to invest in your own state's 529 plan but may want to consider it if a state tax benefit exists. And the distributions do not need to be used to pay for schools within your state of residence. You may also contribute to more than one state's 529 plan.

At the end of the day, the best way to prepare for educational expenses is to become familiar with the savings options available to you and determine how each of these can best address your specific needs.

Have you considered how best to help your loved ones pursue their goals? Together we can find an answer. Connect with your UBS Financial Advisor or find one

Disclosures:

All 529 Plan provisions, including plan minimums, fees, expenses, requirements, features and benefits, vary by state. Before you invest in a Section 529 plan, request the plan’s official statement from your Financial Advisor and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the 529 plan, which you should consider carefully before investing. You should also consider whether your home state or your beneficiary’s home state offers any state tax or other benefits that are only available before you invest in that state’s 529 plan. Section 529 plans are not guaranteed by any state or federal agency.