Paul L. Caron

Thursday, September 19, 2019

529 College Savings Plans Under The TCJA

Ross Riskin (American College of Financial Services), Tax Deductions V. Tax-Free Growth: A Closer Look at 529 College Savings Plans Under the TCJA, J. Multistate Tax'n & Incentives, Vol. 29, No. 6, Sept. 2019:

Now that investors can receive preferential federal income tax treatment when using 529 college savings plans to pay for qualified K-12 tuition expenses under the Tax Cuts and Jobs Act of 2017 (TCJA), it is important to determine whether the value of receiving and investing state income tax deductions provided for qualifying contributions made to this education savings vehicle is more beneficial than the value associated with tax-free growth, given the potential for shortened education planning time horizons. ...

Conclusion.  While the Tax Cuts and Jobs Act of 2017 provides increased flexibility at the federal level for investors who wish to use these accounts to fund K-12 tuition expenses, investors should reconsider the value associated with receiving and investing state income tax deductions compared to the tax-free growth element associated with these accounts. This is especially true if investors have a shorter investment time horizon, either because of a delay in savings or because they are now planning for pre-undergraduate education expenses. Since capital preservation should outweigh the demand for investment growth, investors seeking consistent investment growth should consider a state income tax deduction as not only a tax benefit, but also as a means of earning a guaranteed investment rate of return equal to their effective state income tax rate

Scholarship, Tax, Tax Scholarship | Permalink


An additional note - since CA does not conform with the TCJA, I believe there will be a penalty for early withdrawal when using 529 funds for K-12 education.

Posted by: ERIC DIBELLA | Sep 22, 2019 10:47:22 AM