Updates to 529 Plans: 
What You Need to Know
Monday, October 8th, 2018  
          When Congress writes tax law, it often tries to encourage or discourage behaviors by strategically increasing or decreasing taxes on certain items. Qualified tuition programs (commonly known as 529 plans) are one example. 529 plans encourage us to save money for education by allowing us to never pay taxes on the earnings from those savings--as long as they are eventually used for qualified higher education expenses.
         The Tax Cuts and Jobs Act changed 529 plans at the federal tax level in two ways:
  • Qualified higher education expenses now include elementary school and secondary school tuition, meaning that 529 plan savings can be used for tuition at the K-12 level, not just for college tuition.
  • The total amount of tax-free distributions that any student can receive from a 529 plan for K-12 expenses in a given year is limited to $10,000.
         Even though the concept of a 529 plan was created at the Federal level, each state is given the authority to manage 529 plans however it chooses. In addition to the tax-free treatment of distributed earnings, Colorado also offers a state tax deduction for contributions to 529 plans.
         As it is written right now, Colorado law has not been updated to include K-12-level tuition expenses as qualified expenses for 529 plans. Two proposed laws--one to specifically disallow K-12 tuition, and another to specifically allow it--have both been indefinitely postponed in the state legislature. For now, 529 plan contributions are only deductible for Colorado if contributions will be used for tuition at the university level.

         On the bright side, Colorado did pass a new 529 plan law that is tax-friendly. A new tax credit (available starting on 2019 tax returns, filed in 2020) is available for businesses that contribute to 529 plans on behalf of their employees. For every dollar up to $2,500 contributed per employee, businesses can receive a 20% state tax credit for 529 contributions (for a maximum $500 credit per employee). 

         So, what's the bottom line? It's obvious that both the federal and state governments want to encourage us to save for education. They just don't exactly agree on how to do it.
Employee Spotlight - Ashley R. Golden
Ashley, a Wyoming native, joined the Soukup, Bush & Associates team in January of 2018. She graduated cum laude from the University of Wyoming with her Bachelor of Science in Accounting and minor in marketing in May of 2016. She continued her education at the University of Wyoming and received her Master of Science in Accounting in December of 2017.
Ashley prepares individual and business tax returns, and is also a member of the attestation team.

In her free time Ashley enjoys spending time with family and friends, traveling, and playing with her rescue pup, Bella. She also loves exploring the Colorado outdoors and all Fort Collins has to offer.
          If you have questions about how 529 plans could affect your tax situation, please contact us at (970) 223-2727.