Unpacking the New Tax Law and 529 Plans
It is has been less than a month since the new tax plan was passed and signed. Financial advisors are still unpacking some of the finer points and there are plenty of articles to read on consequences of these changes.
For 529 plans, the splashiest change is the ability to use your 529 accounts to pay for private K-12. If you start drawing money out of the account for kindergarten you miss out on the long-term growth advantage of the 529 but you do gain the advantage of a state income deduction or credit for contributing to your state's 529.
One other highlight, although not necessarily new, is the idea of gifting and tax limitations. Writing in the Chicago Tribune, Terry Savage points out the advantage to Grandparents.
"...very generous (and wealthy) grandparents might take advantage of the provision that allows a one-time contribution of five times the annual gift tax exemption ($15,000 in 2018). So each grandparent could gift a total of $75,000 to each grandchild -- a simple way to distribute an estate!"
Cleary, this is not for every family. But these kinds of contributions, given early enough to a grandchild, can grow to cover the full amount of future state college tuition. Look at the college calculator to see some predictive numbers.
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