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2018 TAX TIP

SECTION 529 PLANS CAN NOW BE USED FOR PRIVATE ELEMENTARY AND HIGH SCHOOL TUITION--

For many years, parents and grandparents have been using tax-favored Section 529 plans to build up funds for the college education of their children and grandchildren. The Tax Cuts and Jobs Act (TCJA) has expanded the use of these programs . Under the TCJA, you can tap into a Section 529 plan to pay tuition expenses at many elementary and secondary schools.

Each state sets the contribution limits for its Section 529 plans (Ohio $462,000 per beneficiary). In many states, you can easily salt away the full amount needed to pay for a full ride.

Best of all there’s no current tax on the build-up of funds within the account for your child. And any distributions are tax-free as long as they are used to pay for qualified expenses like tuition. Now the TCJA is opening up Section 529 plans to pre-college schooling. Beginning in 2018, the definition of qualified expenses is broadened to include tuition for enrollment at an elementary or secondary public, private or religious school. The new law limits the tax-free distributions to $10,000 a year for K-12 tuition.

Be aware that transfers to a Section 529 plan for your child are subject to gift tax. Normally, you can give each recipient an amount up to the annual gift tax exclusion without having to file a Gift Tax Return. The exclusion for is 2018 is $15,000 per recipient ($30,000 for joint gifts by a married couple). But a special rule allows you to contribute an amount equal to five years worth of gifts to a Section 529 plan in just one year. So you can effectively transfer up to $75,000 to your child’s account ($150,000 by a married couple) without having to file a Gift Tax Return. And the new TCJA estate tax limits mean that, even if you have to file Gift Tax Returns, you will not pay any Gift Tax until your total lifetime gifts exceed $11.2 million.

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