Tuition refunds, K-12 education costs and rollovers to ABLE accounts for disability-related expenses, will now reflect recent tax law changes.
New regulations that reflect changes from the 2015 Protecting Americans From Tax Hikes (PATH) Act, and the 2017 tax overhaul will be issued by The Internal Revenue Service (IRS) and Treasury Department, as reported by Think Advisor in the article, “IRS, Treasury to Issue 529 Plan Regs.”
Notice 2018-58 talks about changes to tax laws that will impact 529 college savings plans related to tuition refunds, K-12 education and also rollovers to Achieving a Better Life Experience (ABLE) accounts for disability-related expenses.
Taxpayers, beneficiaries, and administrators of 529 college savings plans and ABLE programs can rely on the rules detailed in the Notice until the U.S. Treasury Department and IRS issue regulations that clarify the three changes.
For 529 plans:
The new regulations will simplify the tax treatment of a special rule added under the PATH Act for a beneficiary of a 529 plan. This is typically a student who gets a refund of tuition or other qualified education expenses. It can happen when a student drops a class mid-semester, according to the IRS and the Treasury. If the beneficiary recontributes the refund to any of his or her 529 plans within 60 days, the refund is tax-free.
The Treasury Department and IRS regulation will stipulate that re-contributions wouldn’t count against the plan’s contribution limit.
The 2017 tax law allows distributions from 529 plans to be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year. These can be for an elementary or secondary (K-12) public, private or religious school of the beneficiary’s choosing.
For ABLE programs:
Another change in that law lets funds be rolled over from a designated beneficiary’s 529 plan to an ABLE account. That type of account is created to pay for disability-related expenses for those who become disabled before age 26 for the same beneficiary or a family member.
Under the new IRS and Treasury regulations, rollovers from 529 plans, and any contributions made to a designated beneficiary’s ABLE account may not exceed the annual ABLE contribution limit, which in 2018 is $15,000. The exception is certain permitted contributions of the designated beneficiary’s compensation.
Reference: Think Advisor (July 30, 2018) “IRS, Treasury to Issue 529 Plan Regs”