The Tax Cuts & Jobs Act (TCJA) enacted in late 2017 impacted many areas of one’s financial life, including taxation pertaining to education expenses. Parents, grandparents and students largely benefited from the following education related tax changes.

First, despite discussions to eliminate or modify them, both the American Opportunity Tax Credit (AOTC) and the Lifelong Learning Credit (LLC) were left intact, as was the student loan interest deduction. There are income limits that restrict who is eligible for these tax credits and deductions; a financial advisor at Northwest Financial Advisors can provide more information.

Section 529 Plan tax benefits were expanded, and qualifying distributions now include tuition for elementary or secondary school education (K-12). Up to $10,000 per student may be withdrawn from a 529 plan to pay for qualified K-12 education during any taxable year, and can be used for public, private or religious schools.

The new legislation only affects the federal tax treatment, and each state has the option to determine whether they will adopt a similar approach at a state income tax level.

In addition, under the new tax law, existing 529 plans can be rolled over into ABLE 529 plans. Achieving a Better Life Experience (ABLE) accounts were established in 2014 to assist families with a disabled child tax-efficiently save for future education, job training, health care and other expenses. ABLE accounts offer the same tax benefits as regular 529 plans such as tax-free earnings and withdrawals when used for qualifying expenses. It is important to note that ABLE savings have no bearing on eligibility for public disability benefits, but only within limits.  For example, once the account balance reaches $100,000, the beneficiary loses their eligibility for Social Security Disability Income.

To learn about all of the tax related benefits that pertain to education, view IRS Publication 970. An advisor with Northwest Financial Advisors can also assist you with understanding your options for tax-efficiently saving for education expenses. Schedule a complimentary consultation at www.nwfllc.com.

This information is not intended to be a substitute for individual tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional. Prior to investing in a 529 Plan, investors should consider whether the investor's or designated 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 such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

Securities offered through LPL Financial, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. Investment advice offered through Northwest Financial Advisors, a registered investment advisor. Northwest Financial Advisors and Northwest Federal Credit Union are not affiliated with LPL Financial.

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