Newly passed tax law could benefit many
Deep inside legislation passed in late 2019, is a provision that broadens the acceptable use of 529 college savings plan funds.
529 savings plans are available to set aside after-tax funds to pay for college and K through 12 education expenses. As long as the funds are used to pay for qualified expenses, any earnings or interest in the savings plan are tax-free. Any unused earnings on funds are subject to a penalty and income tax.
The new rule
To help students financially after graduation, leftover money in a 529 plan may now be used to pay off student loans. There is a $10,000 lifetime limit for the 529 plan's beneficiary and each of their siblings. For example, parents who have 4 kids can take a $10,000 distribution from the 529 plan to pay student loans for each of their children, for a total of $40,000.
Ideas to use this new rule
Given the recent changes in 529 college savings plans, it makes a lot of sense to explore your options and either consider setting up an account or developing a plan for best uses of the funds in your accounts.
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