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529 Plans May Be Used for K-12 and College Now

As you may know, a 529 plan distribution is tax-free if it is used to pay “qualified higher education expenses” of the beneficiary (student).  You don't get a federal income tax deduction for the contribution, but the earnings on the account aren't taxed while the funds are in the program.

Distributions from the program are tax-free up to the amount of the student's qualified higher education expenses. These include tuition, fees, books, supplies, and required equipment. Reasonable room and board is also a qualified expense if the student is enrolled at least half-time

Before Tax Reform made these changes, tuition for elementary or secondary schools wasn't a “qualified higher education expense,” so students/529 beneficiaries who had to pay it couldn't receive tax-free 529 plan distributions.

As of 2018, Section 529 plans may distribute not more than $10,000 in expenses for tuition incurred during the tax year in connection with the enrollment or attendance of the designated beneficiary at a public, private or religious elementary or secondary school.

This limitation applies on a per-student basis, rather than a per-account basis. Thus, under the provision, although an individual may be the designated beneficiary of multiple accounts, that individual may receive a maximum of $10,000 in distributions free of tax, regardless of whether the funds are distributed from multiple accounts.

However, some states (such as California) will tax distributions used for non-college education.

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