New rules for 529 Plans

The rules for tax advantaged 529 plans have changed due to the recent tax reform package.

Under current Indiana Law, Indiana grants taxpayers a credit of up twenty percent of the contributions made to an INDIANA college choice 529 plan.  In order to get the tax credit you MUST donate to an Indiana Choice College 529 plan, you cannot donate to 529 plans operated by other states.  In order to get the credit this year the money must be deposited into your Indiana 529 account BEFORE the end of the year.  The credit is maximized at $5,000 in contributions.  $5,000 in contributions will give you an Indiana tax credit of $1,000.  Note the Indiana tax credit is limited to your Indiana income tax liability.  The tax reform package does not change the Indiana law.  If you have questions about the tax advantages of an Indiana College Choice 529 plan please call Mike Sylvester at 260-407-5000 today!

The Federal rules that govern what counts as qualified education expenses has changed.  The new law (starting 1/1/18) will allow up to $10,000 to be taken from a 529 plan per beneficiary to pay expenses for K-12 education NOT counting home schooling.  The K-12 education can be public school, private school, or a religious private school.

Here is an example of how this might work for a Fort Wayne, Indiana resident:

  • They open an Indiana College Choice 529 plan and ensure the money is deposited into the account before 12/31/2017.
  • They contribute $5,000 to the Indiana College Choice 529 account.
  • They have at least $1,000 of Indiana tax liability for 2017
  • They have two children enrolled at Bishop Dwenger High School in Fort Wayne

In this example the taxpayer will get a $1,000 Indiana income tax credit in 2017.  This means they will pay $1,000 less in Indiana income taxes for 2017.

Then in 2018 they pay tuition to Bishop Dwenger and they can use funds from the 529 plan to pay for the tuition.

Mike Sylvester, CPA

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