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More Uses for Your 529 Plan: SECURE Act Changes
Congress has passed the SECURE Act which was signed into law on December 20, 2019 and features important federal changes expanding the use of 529 plans. The Act makes changes to IRS Code § 529 by expanding the definition of Qualified Higher Education Expenses (QHEE) for 529 plans and is effective for plan distributions made after December 31, 2018.
The definition of 529 plan QHEE will include expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act.
The definition of 529 plan qualified higher education is also expanded to include amounts repaid principal and interest on any qualified education loan of either a 529 plan designated beneficiary or a sibling of the designated beneficiary. To be a qualified expense, the loan repayment amount for an individual is subject to a lifetime limit of $10,000.
Only the federal tax treatment of expenses for apprenticeships and the repayment of student loans was changed by the SECURE Act. Minnesota taxpayers should be aware that Minnesota law does not currently conform to the federal legislation. Thus, although expenses for apprenticeships and the repayment of student loans may not incur federal tax, they may be subject to Minnesota tax, tax recapture consequences for a deduction or tax credit previously claimed, or result in the forfeiture of all or a portion of any previously awarded Matching Grants (the Matching Grant program was an income-based grant program that was discontinued after the 2010 tax year).
As a result, it is important for Minnesota taxpayers to consult their tax advisors before (1) making a withdrawal for apprenticeship and student loan payments or (2) making a contribution to a 529 plan which they intend to ultimately withdraw for apprenticeship or student loan payments. State tax treatment varies by state. Taxpayers who reside or have income in other states should also consult with a qualified tax advisor before taking any such actions.
You may wish to monitor Minnesota state tax law updates and changes by going to the Minnesota Department of Revenue website. On that page, you can also subscribe to tax law changes emails which will notify you when updates and changes are announced.
You may also wish to reference the FAQ Information for Individuals at https://www.revenue.state.mn.us/tax-law-change-faqs.