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Federal Tax Cuts and Jobs Act of 2017 includes changes to Section 529 college savings plans

Aug 20, 2018

As has been previously reported, the United States Congress has passed federal legislation that affects Section 529 accounts, including the Minnesota College Savings Plan. Under the federal legislation:

  • Assets can be withdrawn (without federal tax consequences) for tuition in connection with enrollment or attendance at an elementary or secondary (K-12) public, private, or religious school.

    This applies to distributions after December 31, 2017.
    These distributions are limited to $10,000 in a tax year, across all 529 accounts for the same beneficiary.
  • Assets can be rolled over to an ABLE account without federal tax consequences subject to certain restrictions and limitations.

Minnesota taxpayers should be aware that Minnesota law does not currently conform to the federal legislation. Thus, although the withdrawals and rollovers described above 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 K-12 tuition payments, (2) making a contribution to a 529 plan which they intend to ultimately withdraw for K-12 tuition payments, and/or (3) rolling over assets from their 529 account into an ABLE account. 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 Revenues 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 http://www.revenue.state.mn.us/Pages/FAQ-Individuals.aspx.

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