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What Do Changes to 529 College Savings Plans Mean for You?


At the end of 2017, the most significant tax reform in decades was signed into law. Called the Tax Cuts & Jobs Act (TCJA), the new tax law will have numerous changes for individuals and businesses in the United States.

One outcome in particular could impact families in the United States when it comes to saving for their children’s future education – the revisions made to 529 college savings plans.

Used by millions of Americans to invest and save for their children’s future higher education costs, the TCJA made a major change to this important college savings account.

Let’s take a closer look at the revisions made to these savings plans, as well as a brief overview of 529 college savings plans.


Initially originating from individual state governments, as opposed to the federal government, 529 plans started off as pre-paid tuition programs.

Then in 1996, the Small Business Job Protection Act of 1996 was passed by Congress that authorized qualified state tuition programs.

When the I.R.S. provided guidelines for the new tuitions plans, they placed them under Code Section 529 of the Internal Revenue Code. This led to the name “529 college savings plan.”

Since then, there have been a few revisions and updates to 529 plans, but with the passing of the Tax Cuts & Jobs Act, one of the biggest changes has now taken effect for 2018.


529 plans today come in two forms: a pre-paid tuition plan and an investment savings plan. Many of these plans are sponsored by states and state agencies.

What makes these plans beneficial for families is that any money, including the growth of investments, used for qualifying expenses under the 529 plans are distributed tax-free.

Some of the expenses that qualify as under 529 plans include:

  • Tuition
  • Fees
  • Books
  • Equipment and supplies, such as computers
  • Limited room and board

Prior to the passing of the TCJA, 529 plans could only be used for college and university expenses. But now, the new tax plan allows these plans to cover certain expenses for private, public, and religious K-12 schools – all tax free.

Families will be able to withdraw up to $10,000 per year per child for qualifying kindergarten through 12th grade expenses.

It’s important to note that while the withdrawals for K-12 expenses are tax-free at a federal level for everyone, that may not be the case at the state level.

Each state has its own laws and guidelines for 529 plans, and not all of them have yet to pass legislation that makes withdrawals for K-12 tax free.

It’s important to check state laws when looking to use 529 plans for these expenses.


With these changes to 529 plans under the Tax Cuts & Jobs Act still new, states are expected to start addressing these new guidelines in the coming months.

While some states have announced that they will conform to current federal rules, many have stated that they will work on their own legislation that will determine how kindergarten through 12th grade 529 plan expense withdrawals are taxed.

It is important for individuals to consult with their financial and/or tax advisor when starting a new 529 plan for these purposes, or if wanting to withdraw money to cover the new qualifying expenses.

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