New 529 Account Rules Passed with Extender Provisions

Your Guide to State, Local, Federal, Estate + International Taxation

Many are aware of the last minute tax “extender” provisions passed in December, 2015. But you may not be aware of the numerous other tax provisions passed in conjunction with this legislation. One of them being relative to section 529 plans.

The end of year legislation known as the Consolidated Appropriations Act (H.R. 2029), made a few taxpayer friendly changes to section 529 rules by expanding the definition of qualified higher education expenses that are eligible for tax-preferred distributions from Sec. 529 accounts to include computer technology and equipment. A higher education expense students have had to deal with for many years now, but better late than never.

Section 529 rules are also modified to eliminate the distribution aggregation requirement so that any distribution from a 529 account will be treated as coming only from that account even if the individual making the distribution has more than one 529 account. In addition, the changes now allow a refund of tuition that was paid with amounts distributed from a 529 account as a qualified expense if the amount is recontributed to a 529 account within 60 days. The provision is effective for distributions made or refunds after 2014, or, in the case of refunds after 2014 and before the date of enactment, for refunds recontributed not later than 60 days after the date of enactment.

As a side note, for those familiar with ABLE accounts (Achieving a Better Life Experience for the disabled), which work very similar to section 529 plans, the act now allows individuals to establish ABLE accounts in any state. Previously, individuals could set up accounts only in their state of residence.

By Dale F. Jensen, CPA