Tax law allows expanded use of education savings accounts - NBC12 - WWBT - Richmond, VA News On Your Side

Tax law allows expanded use of education savings accounts

The new tax bill closed a loophole some people have been needing to be fixed. (Source: Pixabay) The new tax bill closed a loophole some people have been needing to be fixed. (Source: Pixabay)
(WWBT) -

The tax reform bill recently passed by Congress and signed into law by President Donald Trump made some big changes to how families can pay for private school for their children.

You are now able to rack up tax savings to help cover the cost.

The Tax Cuts and Jobs Act expanded the use of 529 plans. Those are the accounts that allow families to accumulate money and pay for college on a tax-free basis. But now elementary and secondary school expenses at private or religious institutions can be included.

That means parents can now withdraw up to $10,000 annually per child from their 529 plans to pay for private school tuition and books through the 12th grade.

The plan can still be used for college expenses as well.

Financial planner Thomas Block with the Anchor Financial Group says that while this is a great benefit to many families, it should be handled cautiously.

"Make sure you are looking at this from dual purposes," Block said. "Again, for the future college expenses and also for the annual tuition expenses."

Because Virginia residents get a tax deduction up to $4,000 per account each year, Block said parents could make their contribution Dec. 31, get the tax deduction and then withdraw money for the tuition in the next week.

Parents looking to save for their children's education need to see out a qualified professional as well as a tax professional to understand how these tax changes affect them directly.

It is also worth noting the changes from the tax bill also allow existing 529 savings plans to be rolled into new ABLE accounts.

ABLE stands for Achieving Better Life Experience, which is a saving account for Americans living with disabilities that allows them to invest in a tax-advantages account and withdraw money for qualified expenses without jeopardizing their eligibility for federal and state means-tested benefits.

That move closes a loophole for parents who began saving in a 529 account and later learned their child has a disability and doesn't seek a college education or need the money for expenses related to the disability, such as therapy. Parents can now roll that money into an ABLE account without penalty.

Virginia's participating ABLE program is called ABLEnow.

Virginians who make contributions to an ABLEnow account get a tax deduction up to $2,000 per year with unlimited carryovers to the extent of their contributions. Any Virginia resident can take advantage of this tax deduction towards a love one's ABLE account.

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