News & Press Releases
More Uses for Your 529 Plan: SECURE Act Changes
Congress has passed the SECURE Act which was signed into law on December 20, 2019 and features important federal changes expanding the use of 529 plans. The Act makes changes to IRS Code § 529 by expanding the federal tax treatment of Qualified Higher Education Expenses (QHEE) for 529 plans:
The federal tax treatment of 529 plan QHEE will include expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act.
The federal tax treatment of 529 plan QHEE is also expanded to include amounts of repaid principal and interest on any qualified education loan of either a 529 plan designated beneficiary or a sibling of the designated beneficiary. To be a qualified expense, the loan repayment amount for an individual is subject to a lifetime limit of $10,000.
Only the federal tax treatment of expenses for apprenticeships and the repayment of student loans was changed by the SECURE Act. California taxpayers should be aware that California law does not currently conform to the federal legislation. Thus, although earnings on qualified withdrawals for apprenticeships and the repayment of student loans will not incur federal tax, they are subject to California income tax and an additional 2.5% California tax.
These changes are effective for plan distributions made in 2019.