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The IRS Changes to 529 Plans

Learn about the two new tax perks for these college savings vehicles.

Provided by Carol Petrov, CFP®

Do you have a 529 plan account? If so, you will want to know about two federal tax law changes which may benefit you and your student. One change involves a February 16 deadline.

Congress passed the Protecting Americans from Tax Hikes Act (PATH) in December 2015. Deep in the “fine print” were two “sweeteners” – tax changes designed to help parents with 529 plans.

You can now pay for computer hardware & software with 529 plan dollars. Under the old rules federal tax law only allowed use of 529 funds for computer hardware and software if a university or college required students to have certain hardware, software, or computer-related technology as a condition of enrollment.1

Starting this year, you may buy computers, computer software, associated hardware, and related equipment with 529 plan funds. These technology expenses now fall under the category of Qualified Higher Education Expenses.1

Refunded 529 plan money may now be reinvested in the plan. Here is where the February 16 deadline matters. If you have received a refund of money that was a 529 plan withdrawal from an Eligible Educational Institution, you can now put it back into the same 529 plan within 60 days. (For tax purposes, you will want a receipt showing when that 60-day period began.)1

Why is February 16 important? February 16 is 60 days from the day PATH was enacted, and if you received such a refund at any time during January 1-December 18, 2015, you have until Tuesday, February 16, 2016 to put that money back in the account. If you meet that deadline, the refunded money will not be categorized as a non-qualified 529 plan distribution that is fully taxable and also subject to a 10% penalty.1,2

All 529 plan owners should be aware of these important changes for 2016 and years to follow.

About Carol Petrov, CFP® Carol’s primary responsibilities include providing comprehensive financial planning services for new and existing clients, as well as managing ongoing client needs. She has over 13 years of experience as a Financial Planner and Relationship Manager.
Carol began her career with American Express as a Financial Advisor in 2001. After seven years, she joined Morgan Stanley as a Senior Client Service Associate, in order to continue to develop her advisory skills. There, she became passionate about the implementation of Estates and Trusts for individuals and families of the greater Washington, DC area.

Carol is a native of Montgomery County and was raised in Kensington, Maryland. She earned her Bachelor’s degree from The George Washington University with a major in Human Resource Management and a minor in Psychology. In 2012 Carol received her designation as a CERTIFIED FINANCIAL PLANNER™. She lives in Silver Spring, Maryland and enjoys traveling, skiing and exploring local landmarks with her son.

Carol may be reached at (301) 838-9110 or cpetrov@kendallcapital.com.

Citations.
1 – figuide.com/new-benefits-for-529-plans.html [1/13/16]
2 – forbes.com/sites/josephhurley/2015/07/23/three-mistakes-to-avoid-when-withdrawing-money-from-a-529-plan/ [7/23/

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