Virginia 529 can now be used for K-12 tutition expenses
Changes to the tax law allow savings for both college and K-12
ROANOKE, Va. – Saving for education is getting easier. Thanks to the tax law changes, you can now use the 529 plan for K-12 education as well as college education.
The expansion of the definition of a qualified higher education expense allows you to use up to $10,000 per year, per child of a 529 account for tuition at any public, private or religious school.
North Cross and Roanoke Catholic are both excited about the changes.
We talked to the CEO of the Virginia 529 plan Mary Morris who says there are still questions and these changes came as a shock.
Morris says the 529 can only pay for tuition not school supplies.
What they don't know is if the money can be used for tuition for shorter school programs or if it has to be a year-long program to qualify.
Over the next year, Morris expects attempts to expand and define more of what this means but she doesn't know how much help they'll get from the U.S. Treasury.
"I don't know that we're going to get anything more, so I think we probably just need to come up with a definition at least for the time being of tuition. I think a pretty basic reading of it would be when you get your tuition bill for a private school what that is. What I want to take a look at is whether that can be expanded to a summer school program," said Morris.
She doesn't know how much of a difference this will make because the average contribution is between $100 to $200 a month.
Tax advisors like David Kembel agree, saying it's going to take awhile to see if the changes make any differences.
"I don't think anybody's had time to think it through. The whole thought process before was you have a baby, you start contributing and 18 years later then it's grown to a decent amount and it may or may not completely cover college but it puts a dent in it," said Kembel.
"We do hope that folks will stay focused on the long-term and on the higher education aspects first and foremost," said Morris.
This is only for expenses in 2018 and moving forward.
Virginia 529 can send money to colleges and universities but are checking to see if they are set up to send money to a K-12 school.
Morris says it's always okay to reimburse yourself for the tuition payments, just make sure you keep your receipts.
North Cross has been meeting to talk about the 529 changes and says it's great news because it opens the door to more families considering a private education. The school says a lot of people make tuition payments and want to deduct it so this expansion is going to help a lot of their families make payments.
There are changes to the ABLE accounts too, so parents can save for children with disabilities. Morris says the changes apply to a small group, but it's an important change for those families.
"What we found was for some folks they started college savings account for their child, they realized at some point in the future they are diagnosed with autism or they have an accident, something happens and they have a medical emergency and now they can have an ABLE account. There was no provision to move those funds," said Morris.
You can now make a qualified distribution from a 529 account and roll it over to an ABLE account but there are restrictions on how much you can transfer every year.
A handful of states -- including Delaware, Mississippi, Missouri, Oklahoma, South Carolina, Virginia, and Wisconsin -- have clarified that a distribution for K-12 expenses will be treated as a qualified expense for state tax purposes. Others are still considering what to do because current state laws don't allow for the change.
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