There are a few changes of note regarding 529 College Savings Accounts for 2020.
- 529 College Savings accounts can now be used for student loans
On December 20, 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act legislation expands the ways that 529 college savings accounts can be used to pay for college.
- There is now a lifetime limit of $10,000 that can be taken from 529 college savings accounts to repay qualified education loans1. This includes repayment of either principal or interest for the designated beneficiary of the account or a sibling of the designated beneficiary. This change also allows 529 college savings account owners to use the account for repayment of qualified education loans of any sibling of the designated beneficiary.The tax-free treatment for the repayment of up to $10,000 of student loans, available due to the SECURE Act, only applies to federal taxes at this point. Taxpayers should be aware that their state’s income taxes may or may not be changed to align with this. It is important to consult with your tax preparer to see how your state Income taxes could be affected before taking a distribution to pay for student loans.
- Wisconsin State Income Tax deduction increased for 2020
There currently are no federal income tax benefits for contributions made to 529 college savings accounts. However, Wisconsin residents can qualify for a state income tax deduction if they contribute to a 529 College Savings Plan administered by the state. Edvest and Tomorrow’s Scholar are the current plans available through the State of Wisconsin. For the 2020 tax year, Wisconsin residents are allowed to deduct up to $3,340 in 2020 per college savings per account beneficiary.2
- 2019 College Savings Account contribution deadline
There is still time for you to make a contribution to 529 college savings accounts for the 2019 tax year. The deadline for 2019 contributions is April 15, 2020. This can be an opportunity for Wisconsin residents to get an additional state income tax deduction before filing their 2019 tax returns if contributions are made to one of the 529 College Savings Plans offered through the state of Wisconsin. The maximum state income tax deduction for 2019 is $3,280 per college savings account beneficiary.2
Speak with your Wealth Manager if you have any questions about the 529 college savings account changes discussed here or if you are interested in learning more about using 529 college savings accounts for your children or grandchildren.