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The Federal Tax Reform Bill and 529s

 

On December 22, 2017, the president signed H.R 1, the federal tax reform bill, into law. The law permits withdrawals from 529 college savings accounts up to an aggregate of $10,000 per year per student for tuition expenses in connection with enrollment at an elementary or secondary public, private or religious schools (“K-12 tuition”). We are working on updating our website to reflect the new U.S. tax laws. In the meantime, the website may not address the changes.

 
  • Iowa Taxpayers should consult their tax advisors before making a withdrawal for K-12 tuition and before making a contribution which they intend to ultimately withdraw for K-12 tuition. It may take an act of the legislature to extend the favorable Iowa state tax treatment to K-12 tuition in College Savings Iowa. If a distribution is not qualified for state tax purposes, it would trigger a deduction recapture under Iowa tax law. We will communicate additional information as we have updates.

  • Account owners can withdraw assets to pay K-12 tuition and can treat the withdrawals as qualified expenses with respect to the federal tax benefit.

  • Account owners may request payments for K-12 tuition be made payable to the participant or the beneficiary, but the account owner should not request a payment be made directly to the K-12 institution.

  • The tax treatment of withdrawals for K-12 tuition for taxpayers in non-Iowa states will be determined by the account owner's state of residence and is unclear. Each state will ultimately determine the treatment of these withdrawals independently. Account owners should consult their tax advisors for further guidance.

  • Account owners can roll over amounts in 529 plans to ABLE plans without federal tax consequences. However, a rollover would trigger a deduction recapture under Iowa tax law. A rollover to IAble would qualify for the annual state tax deduction, subject to the maximum deduction. It will take an act of the legislature to extend the favorable Iowa state tax treatment for a rollover.

For financial professional use only. Not for inspection by, distribution or quotation to, the general public.

CID: IM0116-39505-0119 - IA

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