The Tax Cuts & Jobs Act has resulted in a number of changes to the normal operation of tax law in the country. One specific area that has changed: the impact of taxes on 529 plans.
What are 529 plans? Officially known as “qualified tuition plans,” 529 plans are savings plans that offer various tax benefits. To make the most of the benefits of these plans, withdrawals should be used for qualified higher education expenses. A withdraw that is not used at a qualified facility can result in additional taxes and penalties. States and educational institutions throughout the country sponsor these plans.
Originally, these plans were designed to provide funds only for college and other forms of higher level education. The new tax law changes this.
How does the new tax law impact 529 plans? Senator Ted Cruz inserted language within the law that allows for withdraws of up to $10,000 to cover tuition expense of K-12 schools. As a result, primary public, private and religious schools now qualify.
A recent piece in Forbes points out that the law only impacts federal tax implications on these withdrawals. State taxes may apply.
At this time, Minnesota applies a state tax on withdrawals made for primary school payments. The discrepancy could result in tax issues. Those who experience tax issues resulting from 529 plans or other tax controversies are wise to seek legal counsel. An experienced attorney can review a notice from the Minnesota Department of Revenue (MDR) and provide counsel on the best course of action for your specific situation.