New rules for 529 Plans

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

The Indiana House and Senate almost unanimously decided to change Indiana law so that Indiana parents CANNOT make distributions from Indiana 529 plans to pay for private K-12 school.  If you take money out of an Indiana 529 plan to pay for private K-12 education this is a non qualified contribution and if you received an Indiana tax credit you will have to pay that credit back.

This is another example of Indiana law not matching Federal law.  I am amazed how quickly the Indiana State Republicans who say they back private schools changed the law so that Hoosiers cannot use Indiana 529 plans to pay for private K-12 education.


Mike Sylvester, CPA


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