The Tax Cuts and Jobs Act changed 529 plans at the federal tax level in two ways:
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.
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.
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.