The 529 plan has been around for a while. It is based on Code Section, you guessed it, 529. Originally, the plans were set up so that money could be saved for a child’s eventual college education costs. The money wasn’t deductible on your federal return, but it could grow tax-free.
States started vying for the 529 plan money in an effort to encourage higher education in their state. They gave out state tax credits and tax deductions.
Then, the Tax Cuts and Jobs Act changed the rules regarding 529 plans. The money inside the plans can now also be used for private schools and qualifying home schooling.
That means you could make a contribution to a 529 plan, collect a state tax deduction or credit and then pull the money right out for private school or home schooling costs.
What states give credits? It’s easier to list the states where you don’t get a credit or deduction. Those states are: Alaska, California, Delaware, Florida, Hawaii, Kentucky, Maine, Nevada, New Hampshire, New Jersey, North Carolina, South Dakota, Tennessee, Texas, Washington and Wyoming. Every other state and the District of Columbia offer some kind of benefit.
The strategy here is specifically for people whose children go to private schools or who are enrolled in a qualified home school. Make a deduction to their 529 plan, take the state deduction or tax credit and then take the money out of the plan to pay for the school.
There are over 75 strategies in “Taxmageddon 2018.” This is just one of them. Taxmageddon doesn’t mean that it’s the end of tax planning. It’s not the end. It’s just a change. Put the right strategies in place before year-end, so you can put more money in your pocket.
Keep watch for “Taxmageddon 2018”, the First Look edition. It will due out in just a few weeks and initially available only at USTaxAid.com.