The Tax Cuts and Jobs Act (2017 Tax Act) has made changes to qualified tuition programs, better known as “529 Plans.” Previously limited to “qualified higher education expenses,” the 2017 Tax Act provides that qualified higher education expenses now include expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school. Thus, tax-free distributions from 529 Plans can now be received by students enrolled in private elementary or high schools who pay tuition expenses, effective for distributions after 2017.
The Internal Revenue Service generally defines elementary or secondary education to include kindergarten through grade 12. We do not believe that this change in law extends to pre-school education tuition, even if the pre-school is housed at a school which also provides elementary education.
However, there are limits on how much can be taken from a 529 Plan for these types of expenses. The amount of cash distributions from all 529 Plans per single student during any tax year cannot exceed more than $10,000 for elementary school and secondary school tuition incurred during the tax year.
As second semester tuition bills are coming due for private schools, it might be beneficial to take advantage of the new 529 Plan rules. For any outstanding 2017 tuition bills, distributions from 529 plans may be used to pay them.
As a reminder, Missouri taxpayers may claim a Missouri income tax deduction for contributions to 529 Plans. The annual Missouri deduction limit is $8,000 for individual taxpayers and $16,000 for married couples.