“The regulations will reflect tax law changes affecting 529 plans as they relate to tuition refunds, K-12 education and rollovers to an ABLE account for disability-related expenses.”
The Internal Revenue Service (IRS) and Treasury Department recently announced that they plan to issue regulations on tax law changes that will impact 529 plans related to tuition refunds, K-12 education and rollovers to an ABLE account for disability-related expenses.
Think Advisor’s article, “IRS, Treasury to Issue 529 Plan Regs,” explains that Notice 2018-58 talks about 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 detailed in the Notice, until the U.S. Treasury Department and IRS issue regulations that clarify the three changes.
The new regulations will simplify the tax treatment of a special rule added under the PATH Act for a beneficiary of a 529 plan. This is typically a student who gets a refund of tuition or other qualified education expenses. It can happen when a student drops a class mid-semester, according to the IRS and the Treasury. If the beneficiary recontributes the refund to any of his or her 529 plans within 60 days, the refund is tax-free.
The Treasury Department and IRS regulation will stipulate that re-contributions wouldn’t 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. These can be for an elementary or secondary (K-12) public, private or religious school of the beneficiary’s choosing.
Another change in that law lets funds be rolled over from a designated beneficiary’s 529 plan to an ABLE account. That type of account is created to pay for disability-related expenses for those who become disabled before age 26 for the same beneficiary or a family member. The new IRS and Treasury regulations would say that rollovers from 529 plans, along with any contributions made to the designated beneficiary’s ABLE account—other than specific permitted contributions of the designated beneficiary’s compensation—can’t exceed the annual ABLE contribution limit. That limit is $15,000 for 2018.
Reference: Think Advisor (July 30, 2018) “IRS, Treasury to Issue 529 Plan Regs”