Many people were aware that the Tax Cuts and Jobs Act implemented and changed various tax codes, one of which is the famous 529 plan. The TCJA created a change that allowed for 529 plans to be applied to private K-12 schooling as well as higher education (with a limit to 10k per student). But there remains a question, is it truly that easy?
This is a question that has been popping up recently because 529 plans are not only a federal plan, they are directly affected by what the state plan allows. You see the way a 529 plan works is that money part of the plan is not taxed by the IRS because the plan is used only for approved education. So the states were left scrambling to decide if they can still claim income taxes on the 529 plans.
Many states have adopted a system that allows for contributions to 529 to be classified as a deduction, up to a certain amount. Some other states switched their policies to match the federal legislation so no other reform was needed. Additionally, other states have excluded the K-12 status for the 529 plans, which means they may still collect state income tax on these plans.
It’s important to stay up to date on federal legislation and guidance for taxes, but don’t forget about your state taxes as well. If you have questions regarding taxes or 529 plans, contact the professionals at the Center for Financial, Legal & Tax Planning, Inc.