1. 2020 Plan Contribution Limits

Contributions to a Section 529 plan are limited by the maximum lifetime limits of a plan and the annual gift tax exclusion amount—meaning that clients can contribute up to $15,000 per year in 2020 without a gift tax liability if no other contribution is made to the beneficiary. 529 plans also offer the chance to bundle contributions – allowing for a $75,000 contribution in one year rather than over a five-year period for gift tax purposes. (Photo: Shutterstock)

2. Taxation Upon Distribution

The savings plans are funded with after-tax dollars that are permitted to grow on a tax-free basis (and function much like a Roth IRA), so that distributions from the account are not taxed when received so long as they are used to pay for qualified education expenses. Nonqualified distributions are included in gross income, but only to the extent that the distribution represents earnings on amounts that were contributed. (Photo: Shutterstock)

3. What Exactly Is a “Qualified Education Expense”?

Qualified education expenses include the cost of tuition itself, as well as the cost of fees, books, supplies and equipment that is required for the plan beneficiary’s enrollment at an eligible education institution, as well as reasonable costs for room and board (although room and board costs may be subject to specific limits, such as the actual amount charged by the school for student housing). Qualified expenses also include costs related to special needs services incurred in connection with a special needs beneficiary’s enrollment or attendance at an educational institution. Under the Secure Act, enacted in December, up to $10,000 per student can be used to repay student loans. (Photo: Shutterstock)

4. Using 529 Plans for Elementary and Secondary School Expenses

In addition to the typical use of 529 plan funds to finance expenses related to a beneficiary’s college education, the 2017 tax reform legislation expanded 529 college savings plans to permit the use of up to $10,000 per year for elementary or secondary school expenses. However, the $10,000 amount applies on a per-student basis, meaning that if the student is beneficiary of several accounts, he or she can only receive a maximum of $10,000 from all accounts. (Photo: Shutterstock)

5. Homeschooling and 529 Plan Funds

Many clients may have glossed over an article while the 2017 tax reform legislation was being debated, and may now question whether Section 529 plan funds can be used for the expenses relating to homeschooling a child. The answer is “not yet”. The provision was taken out of the tax reform bill at the last minute, although the issue has been reintroduced for discussion. (Photo: Shutterstock)


6. Multiple Children and 529 Plans

Clients are permitted to fund multiple Section 529 plans for different children or beneficiaries without incurring gift tax consequences, as long as the annual contribution for any particular beneficiary does not exceed the annual contribution limit ($15,000 in 2019). (Photo: Shutterstock)

7. How Do Tax Credits Impact Taxation of Plan Distributions?

The student may use Section 529 plan funds and still qualify for education-related credits such as the American Opportunity or Lifetime Learning tax credits, so long as the same amounts are not used to cover the same qualified education expenses. (Photo: Shutterstock)

8. Contribution Deadlines for 529 Plans

The rules governing contribution deadlines vary by state. Some states impose a strict December 31 deadline—meaning that the funds must be received and deposited into the account by December 31, 2019, to qualify as a contribution for the 2019 tax year. In some states, the contribution need only be postmarked by December 31, 2019, to qualify. (Photo: Shutterstock)

9. 529 Plans and ABLE Accounts

The 2017 tax reform legislation also amended the previously existing provisions to allow 529 plan funds to be rolled over into an ABLE account for the designated beneficiary or the designated beneficiary’s family member. ABLE account rules are similar to those governing 529 plans, but the funds receive tax-preferred treatment upon distribution because they are used for the benefit of a disabled individual. (Photo: Shutterstock)

10. New Funding Strategies to Consider Post-Reform

For tax years beginning after 2017 and ending before 2026, the 2017 tax reform legislation doubled the value of the child tax credit, increasing its total value from $1,000 to $2,000 per child under age 17 (i.e., a married couple with two children under 17 may receive an extra $2,000 per year, assuming they do not cross the income thresholds). $1,400 of this per-child credit is now refundable, and only this refundable portion will be adjusted annually for inflation going forward. (Photo: Shutterstock)


IRC Section 529 plans are a valuable way to save funds for a child’s college or other education expenses, but the fact remains that many clients don’t fully understand the rules that apply to these types of accounts. The issue is compounded by the changes made to the 529 plan rules under Trump’s tax reform bill. Here are the top ten things that clients need to know about funding a Section 529 plan in 2019.

For an expanded version in pdf, with fuller explanations, check out:

Top 10 Tax Facts for 529 College Plans in 2019


(Related: Top 10 Estate Planning Tax Facts for 2019)