529 Funds Can Now Be Used for Student Loan Repayment and Apprenticeships

529 Funds Can Now Be Used for Student Loan Repayment and Apprenticeships

Do you have a student seeking higher education? With so much going on during these times, it might be beneficial to know how your 529 educational savings plan can be used for student loan repayments and apprenticeships.

Signed into law on December 20, 2019, the SECURE Act allows 529 plan funds to be withdrawn free from federal taxes for student loan repayment and certain apprenticeship programs. Here are a few of the details.

The SECURE Act expands the list of qualified expenses for which money can be withdrawn free from federal taxes, and perhaps state taxes also, from a 529 education savings plan.
Under the new law, money can now be withdrawn free from federal taxes to pay the interest and principal on qualified higher education loans for the beneficiary of the 529 account and the beneficiary’s siblings. The amount that can be withdrawn tax-free is limited to $10,000 per individual.
Money can also be withdrawn free from federal taxes to pay for fees, books, supplies, and equipment required for participation in a registered apprenticeship program.
These changes to the 529 plan rules are retroactive and apply to withdrawals made after December 31, 2018.
It’s up to each state to decide whether withdrawals for student loan repayments and apprenticeship programs will be free from state taxes. It’s a good idea to find out how your state will treat withdrawals for these expenses before making them.

Please note: For more complete information about a 529 education savings plan, including investment objectives, risks, fees, and expenses associated with it, please carefully read the issuer’s official statement before investing. It can be obtained from us, your financial advisor. Some states offer state residents additional benefits, such as a state tax deduction for contributions to the plan, reduced or waived program fees, matchings grants, and scholarships to state colleges. Any state-based benefit offered with respect to a particular 529 education savings plan should be one of many appropriately weighted factors to be considered in making an investment decision. You should consult with us to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances. You may also wish to contact your home state or any other 529 education savings plan to learn more about the features, benefits, and limitations of that state’s 529 education savings plan.

With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. We look through every aspect of your financial plan and identify opportunities to put tax-efficient strategies into play for you – strategies that should be applied today and revisited as your circumstances evolve with the goal of a prosperous tomorrow. Call us today at 802-536-1843 to schedule a strategy session and begin building your road map to financial success.

Article published in April 2020 edition of Eye on Money. If you would like to be added to our mail list please email jennifer@dh-cpa.com.