The Tax Cuts and Jobs Act (TCJA) changed funding a child’s education significantly. Here are five factors to consider.
- You can now pay tuition for kindergarten through 12th grade at private, public, or religious schools with money saved in tax-advantaged 529 college savings accounts.
- You can now draw up to $10,000 federally tax-free per student from a 529 plan to fund K-12 tuition expenses. There is no ceiling for distributions from a 529 plan for college expenses. While contributions are not deductible, earnings can grow free of federal income tax on withdrawals used for qualified school expenses.
- You are not only limited to 529 plans sponsored by your state and can choose from a long list of 529s sponsored by other states.
- The TCJA axed taxes on alimony payments, so custodial parents should have it easier qualifying for need-based aid.
- Tax deductions for interest on home equity loans and lines of credit were eliminated. These were major sources of education funding, and losing their deductibility may require a change in your college funding plan.
Education tax breaks were boosted overall by the TCJA, but you almost must be a financial professional to navigate the complexities confidently. We are here to answer questions and help you create a strategic plan.
Kim Scott CFP®
DIRECTOR OF Financial PLANNING