Today’s blog focuses on several significant changes that will directly impact those of you who have minor children or grandchildren who are college-age or younger. We will explore the Expanded Child Tax Credit and discuss some significant changes to 529 (College Savings) plans.
Under the new tax law, the Child Tax Credit has been expanded from $1,000 per qualified child to $2,000 per child (under the age of 17). In addition to this substantial increase, the phase-out of the Child Tax Credit for higher earning couples is now capped at $400,000, much higher than the previous phase-out income cap of $110,000.
529 College Savings Plans were first introduced in 1996. A 529 is a tax-advantaged savings account that grows tax deferred. Distributions have been completely tax free, but only when used for qualified post-secondary education expenses. Now a significant change will affect many of your children or grandchildren. The new tax law also allows the use of these funds for private elementary and secondary school expenses (up to $10,000 per year per student). In addition, tax-free 529 plan distributions will now be permitted to cover homeschooling expenses. The 529 is no longer just a College Savings Plan. A smart way to save for education just got smarter!
For those interested in additional savings on state taxes, there is another key benefit of investing in a 529. Contributions to 529 plans now qualify as deductible at the state level, over and above the new $10,000 limit on state and local tax deductions. This generous tax incentive applies to 529 investments up to $15,000 per year, per student. Because of their expanded flexibility and increased tax advantages, there has never been a better time to explore utilizing 529 plans.
If you have questions about today’s blog topic, please contact us. We will be glad to help you determine whether contributing to a 529 plan can be a beneficial piece of your personal financial plan. As always, we count it a privilege to serve you and welcome your questions and feedback.
