On December 22, 2017, a broad based federal tax bill (H.R.1) was signed into law. The new federal tax law is complex and specifically impacts section 529 college savings plans and ABLE (Achieving a Better Life Experience) disability savings plans.
The legislation includes the following new provisions related specifically to 529 plan accounts, beginning with the 2018 tax year:
- The definition of “qualified higher education expenses” was expanded to include qualified K-12 tuition expenses at a private, public or parochial school up to $10,000 per year per student.
- Account owners can now make withdrawals to pay for qualified K-12 tuition expenses up to $10,000 per year per student. Account owners can treat withdrawals for K-12 tuition expenses as “qualified higher education expenses” with respect to both the federal and DC tax benefit (The tax treatment of such withdrawals by states other than DC will be determined by the account owner's state of residence).
- The DC tax deduction for eligible contributions to the DC College Savings Plan (the DC 529 plan) remains unchanged. The amount of the deduction remains $8,000 for married couples filing jointly, who have separate accounts, ($4,000 for individuals) when they contribute to their DC College Savings Plan account1.
- Account owners will be able to roll over 529 plans to ABLE plans, up to the ABLE annual contribution limit.
We encourage you to consult a qualified tax advisor about the potential impact this new tax bill may have on your personal situation.
1Contributions by DC taxpayers in excess of the annual limit can be carried forward and deducted in future years on their DC tax return. If a participant makes a non-qualified withdrawal or a transfer/rollover to another state’s program within two (2) years of opening the account, the amount of the deduction is “recaptured” and must be included in the participant's District of Columbia income.