Check state laws before K-12 tuition withdrawals

The 2017 federal tax reform authorized the use of 529 funds for K-12 tuition expenses at public, private and religious schools. Account owners may withdraw up to an aggregate of $10,000 per year, per beneficiary, from all 529 plans for this purpose.

But not every state is legally equipped for the change for state income tax purposes.

While K-12 tuition is now a qualified expense under federal law, residents of some states may still face recapture of previously taken state income tax benefits. The penalty would apply in states that offer income tax benefits and whose laws have not been amended to recognize the eligibility of K-12 tuition expenses for state income tax purposes.

Utah residents with my529 accounts will not face a recapture of previously claimed Utah state income tax benefits if they withdraw up to an aggregate of $10,000 from their my529 account to pay for K-12 tuition expenses at public, private, and religious schools.

When money is withdrawn for K-12 tuition expenses, funds go directly to the account owner. The account owner is responsible for keeping tuition receipts and documentation to show that the withdrawal was used for qualified higher education expenses.

Check with a tax advisor on the state tax consequences before withdrawing funds for K-12 tuition expenses.