On December 22, 2017, the president signed new tax legislation (H.R.1) into law. There are two major elements that impact 529 savings plans.
1) 529 savings plans may now be used for up to $10,000 per year for K-12 tuition expenses. This provides families with additional opportunities to save federal income tax-free for tuition expenses at private, public and religious K-12 schools, as well as for costs characterized as tuition that may be incurred in connection with attendance at a public K-12 school (it is not currently clear what public K-12 school costs, if any, will be regarded as tuition for this purpose.)
2) The federal tax law now allows rollovers from a 529 savings plan account to an account in a 529A “ABLE” savings plan for the same beneficiary or a “member of the family” of the same beneficiary. The amount that may be rolled over cannot exceed, together with contributions from other sources to the applicable beneficiary’s plan account, the annual limit on contributions to an ABLE account ($15,000 in 2018) without regard to the increased limit permitted for contributions by certain working beneficiaries.
We currently are working on updating our website and materials, and will continue to share information as we further understand the implications. In the meantime, we encourage you to consult a qualified tax advisor to discuss your personal situation.
Important Legal Information
Tax benefits are conditioned on meeting certain requirements. Federal income tax, a 10% federal tax penalty, and state income tax and penalties may apply to nonqualified withdrawals of earnings. Generation-skipping tax may apply to substantial transfers to a beneficiary at least two generations below the contributor. Gift examples are general; individual financial circumstances and state laws vary—consult a tax advisor before investing. If the contributor dies within the five-year period, a prorated portion of contributions may be included in their taxable estate. See the Investor Handbook for more complete information.
Investors should carefully consider college savings plan investment goals, risks, charges and expenses before investing. To obtain the Investor Handbook, which contains this and other information, call Franklin Templeton Distributors, Inc., the manager and underwriter for the plan, at (877) 4NJ-BEST. You should read the Investor Handbook carefully before investing and consider whether your or the account beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in its qualified tuition program.
Did You Know? NJBEST has been professionally managed by Franklin Templeton Investments since 2003.