New Tax Law Allows Payment of K-12 Tuition from 529 Plans and Rollovers to ABLE Accounts

The tax reform legislation signed into law December 22, 2017, brings several important enhancements to 529 college savings plans, including the Utah Educational Savings Plan (UESP).

Beginning on January 1, 2018, UESP account owners may take tax-free withdrawals up to $10,000 annually from their accounts for tuition expenses at public, private, or religious schools. This provision applies to elementary, middle, and high schools.

Payments for K-12 tuition expenses cannot exceed a combined total of $10,000 per beneficiary from all qualified tuition programs, including UESP. A UESP account owner is responsible for monitoring the $10,000 limit, and for maintaining adequate records, such as receipts and other documentation.

Account owners may request a withdrawal for K-12 tuition expenses online through Account Access or by completing and submitting a Withdrawal Request form (Form 300).

Under the new legislation, 529 account owners also can roll over their savings to an Achieving a Better Life Experience (ABLE) account owned by the same beneficiary or member of the beneficiary’s family. A rollover will count toward the annual ABLE account contribution limit, which increased to $15,000 on January 1, 2018. However, any rollover amount in excess of $15,000 will be included as part of the beneficiary’s income.

A rollover from a Utah taxpayer’s UESP account to an ABLE account is subject to recapture of all previously claimed Utah state tax credits or deductions in the year the rollover is made. However, Utah taxpayers can claim a Utah state income tax credit for contributions to an account in another state’s ABLE program.

Account owners may request a rollover to an ABLE account by completing and submitting a Withdrawal Request form (Form 300).

Please consult a tax advisor to see how these changes affect your individual tax situation.