The Internal Revenue Service and Treasury Department said Monday they plan to issue regulations on tax law changes affecting 529 plans related to tuition refunds, K-12 education and rollovers to an ABLE account for disability-related expenses.
Notice 2018-58 addresses a change included in the 2015 Protecting Americans From Tax Hikes (PATH) Act, and two changes included in the 2017 tax overhaul.
Taxpayers, beneficiaries and administrators of 529 and Achieving a Better Life Experience (ABLE) programs can rely on the rules described in the Notice until Treasury and IRS issue regulations clarifying the three changes.
Future regulations will simplify the tax treatment of a special rule added under the PATH Act for a beneficiary of a 529 plan, usually a student, who receives a refund of tuition or other qualified education expenses. “This can occur when a student drops a class mid-semester,” IRS and Treasury explain. “If the beneficiary recontributes the refund to any of his or her 529 plans within 60 days, the refund is tax-free.”
The Treasury and IRS reg will explain that re-contributions would not count against the plan’s contribution limit.
The 2017 tax law allows distributions from 529 plans to be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year at an elementary or secondary (K-12) public, private or religious school of the beneficiary’s choosing.
Another change in that law allows funds to be rolled over from a designated beneficiary’s 529 plan to an ABLE account — which are set up to pay for disability-related expenses for those who become disabled before age 26 — for the same beneficiary or a family member.
The IRS and Treasury regs would provide that rollovers from 529 plans, together with any contributions made to the designated beneficiary’s ABLE account (other than certain permitted contributions of the designated beneficiary’s compensation) cannot exceed the annual ABLE contribution limit — $15,000 for 2018.
— Check out New GOP Tax Plan Adds Savings Accounts, Expands 529s on ThinkAdvisor.