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TCJA Series: Changes to 529 Plans for School Tuition

The Tax Cuts and Jobs Act (TCJA) has made some changes to qualified tuition programs (“QTPs,” also commonly known as “529 plans”) that you might be interested in. These changes take effect for 529 plan distributions after 2017.

A 529 plan distribution is tax-free if it is used to pay “qualified higher education expenses” of the student. Under the old rules, tuition for elementary or secondary schools wasn’t a “qualified higher education expense,” so students who had to pay it couldn’t receive tax-free 529 plan distributions.

The TCJA provides that qualified education expenses now include expenses for tuition at an elementary or secondary public, private, or religious school. Thus, tax-free distributions from 529 plans can now be received by beneficiaries who pay these expenses, effective for distributions from 529 plans after 2017.

There is a limit to how much can be taken from a 529 plan for these expenses. The amount of cash distributions from all 529 plans per single beneficiary during any tax year can’t, when combined, include more than $10,000 for elementary school and secondary school tuition incurred during the tax year.

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