IRS to issue rules on education-savings plans
The Treasury Department and IRS on Monday announced that they plan to issue regulations about changes made to education savings plans under the tax law President Trump signed in December.
The agencies’ announcement is the latest example of Treasury and the IRS laying out how they intend to implement various aspects of the tax law, which made a number of tax changes affecting individuals and businesses.
Taxpayers have been awaiting guidance about the tax law so that they can figure out how to comply with new provisions and how to file their taxes next year.
{mosads}
The new IRS notice outlines guidance it plans to issue pertaining to tax-advantaged savings plans known as “529 plans.”
One notable change that the tax law made to 529 plans was to expand the purposes for which funds in the plans can be used.
While 529 plans have traditionally been used to save money for higher education expenses, the tax law expanded the plans so that money in the plans can also be used to pay up to $10,000 of tuition per student each year at elementary and secondary schools, both public and private.
The IRS said it plans to issue guidance that defines “elementary or secondary” schools for 529 plan purposes in a way that is consistent with the definition used for Coverdell education savings accounts, another type of tax-favored savings accounts.
Another change the new tax law made to 529 plans is that it allows funds from the plans to be rolled over to ABLE accounts, which are tax-advantaged savings plans whose funds can be used to cover expenses for people with disabilities. The IRS said it plans to issue guidance that provides that the sum of a rollover and other contributions to a beneficiary’s ABLE account cannot exceed the annual contribution limit for the accounts, which is $15,000 this year.
The IRS said it is also going to issue guidance pertaining to a change made to 529 plans in a 2015 tax law. Under that law, if funds from a 529 plan are used for education expenses that are refunded, the refund is tax-free as long as the beneficiary of the plan recontributes the refunded amounts to his or her plan within 60 days.
The IRS said it will issue rules that simplify the tax treatment of the recontributions and that provide that the recontributions don’t count against the annual contribution limits for 529 plans.