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Regulation

IRS provides guidance on 529 plans

IRS OKs up to $10,000 in K-12 spending and rollovers to ABLE accounts; makes recontributing tuition refunds to 529s tax-free

The IRS and Treasury Department provided guidance on regulations to be issued affecting three areas of 529 plans, after legislation liberalized some tax consequences related to the educational savings plans.

Two portions of the guidance reflect changes enacted in the 2017 Tax Cuts and Jobs Act.

Distributions from 529 plans can now be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year at an elementary or secondary public, private or religious school of the beneficiary's choosing.

In another change stemming from last year's tax reform, the IRS and Treasury are permitting funds to be rolled over from a designated beneficiary's 529 plan to an ABLE account for the same beneficiary or a family member.

ABLE accounts are tax-favored accounts for those who become disabled before age 26. They are designed to enable the disabled and their families to save and pay for disability-related expenses.

The rollovers from 529 plans, together with any contributions made to the designated beneficiary's ABLE account (other than certain permitted contributions of the designated beneficiary's compensation) cannot exceed the annual ABLE contribution limit of $15,000 for 2018, the IRS said.

The third change, which involves tuition refunds and 529 plans, stems from the 2015 Protecting Americans From Tax Hikes Act. The change allows a student who receives a refund of tuition or other qualified education expenses — often as a result of dropping a class midsemester — to recontribute the refund tax-free to any of his or her 529 plans within 60 days.

"IRS provides guidance on 529 plans" originally appeared on InvestmentNews, a sister publication of Pensions & Investments.