More power for 529 funds
New law allows payments for student loans, apprenticeships
Your my529 account just became more versatile, thanks to new federal legislation.
The SECURE (Setting Every Community Up for Retirement Enhancement) Act, signed into law on December 20, 2019, expands qualified higher education expenses to include repayment of qualified education loans. It also permits 529 funds to cover registered apprenticeships.
my529 account owners can now withdraw funds for these purposes.
Qualified higher education expenses for 529 plans also include tuition, mandatory fees, books, room and board (for students attending at least half time), computers and internet access, among others.
Student loan repayment
The SECURE ACT allows the use of account funds for the repayment of qualified education loans—including amounts paid as principal or interest—for the beneficiary or a sibling of the beneficiary. A beneficiary can use no more than $10,000 in withdrawals from all 529 accounts to pay down the loans. Distributions from 529 accounts to a sibling also have a $10,000 limit.
However, using my529 money to repay student loans will limit any income tax deductions for student loan interest.
Apprenticeships must be registered and certified with the U.S. Secretary of Labor under Section 1 of the National Apprenticeship Act to be considered a qualified expense. Fees, books, supplies and equipment required for participation are also classified as qualified higher education expenses.
A note on withdrawals
Currently, my529 sends withdrawal checks to the account owner, the beneficiary or the eligible educational institution—this practice will not change with the passage of the SECURE Act. Account owners or beneficiaries who wish to take advantage of the new provisions will need to withdraw funds from their my529 account and then make a payment to the apprenticeship program, student loan lender or sibling.