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Education Planning Update: NYS 529 ALERT

The Tax Cuts and Job Act of 2017 added the ability for state 529 plans to qualify withdrawal expenses to include up to $10,000 per year per beneficiary for tuition at any public, private or religious elementary or secondary school. But, not all states chose to participate in this change and amend their laws, including New York State.

Let’s be honest, education is expensive, and costs keep rising throughout the US for preliminary and higher education.  In an effort to encourage families to save for their children’s higher education, the federal government created what is known to most of us as “529 plans.”  529 plans are a tax advantaged saving mechanism sponsored by states and agencies in which the “saver opens an investment account to save for the beneficiary’s future qualified higher education expenses . . . [.]”[1]  The investment account grows tax-free and withdrawals to qualified institutions are not taxable to the saver.  Further, most states offer some sort of tax benefit to the saver if they open up that respective states 529 plan, the benefits vary greatly by state.

Prior to the Tax Cuts and Job Act of 2017 (TCJA), qualified expenses were only to be paid to higher education institutions.  The TCJA added the ability for state 529 plans to qualify withdrawal expenses to include “up to $10,000 per year per beneficiary for tuition at any public, private or religious elementary or secondary school.“[2]  This provides much more flexibly for families in their education planning.  But, not all states chose to participate in this change and amend their laws, including New York State (NYS).

NYS decoupled from the federal 2017 TCJA expansion of qualified expenses and NYS qualified expenses still only includes withdrawals to higher education institutions from 529 plans.  If a saver uses their NYS 529 plan to pay for K-12 education, this will be considered a non-qualified withdrawal and they will be required to recapture any tax benefits they may have received and/or accrued.[3]   Of course, there are benefits to participating in the NYS 529 plan.  The saver is able to deduct their contributions in the plan from their gross income on their New York State personal income tax return, up to $10,000 for married individuals and up to $5,000 for single individuals.  A NYS resident does not have to choose the NYS 529 plan; they are able to choose other state’s plans that allow non-resident savers.  A potential benefit for a NYS resident to choose a non-resident 529 plan is the saver could potentially use the money for K-12 expenses, unlike NYS.  But of course if you chose a non-resident state 529, you will not be able to deduct your contribution on your NYS tax return.

At Curran Wealth Management we understand the complexities of saving for education and we can help you and your family plan for the future.  We are committed to staying as up to date as possible as new tax guidance is published and will do our best to keep you informed of any significant developments.
 

Please check with your tax advisor, your Curran Wealth relationship manager, or contact Curran Wealth Management if you have any questions. 
 518.391.4200 •info@curranllc.com







[1] https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html
[2] https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html
[3] https://www.nysaves.org/home/fe.html


Thee material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness. It is not, and should not be regarded as “investment advice” or construed as a “recommendation” or an offer to buy or sell a security.  CIM, LLC does not provide tax or legal advice.  No one connected with CIM, LLC can ensure tax consequences of any transaction.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.