SECURE Act expands uses of 529 funds
my529 accounts just became more versatile for your clients, thanks to new federal legislation.
The SECURE (Setting Every Community Up for Retirement Enhancement) Act, signed into law on December 20, 2019, expands qualified higher education expenses to include repayment of qualified education loans. It also permits 529 funds to cover registered apprenticeships.
Your clients can now withdraw my529 funds for these purposes.
The 529 provisions in the SECURE Act are retroactive to January 1, 2019, and withdrawals should occur in the same period as the qualified expense.
Qualified higher education expenses for 529 plans also include tuition, required fees, books, room and board (for students attending at least half time), computers and internet access.
Student loan repayment
The new law approves the use of account funds for the repayment of qualified education loans—including amounts paid as principal or interest—for the beneficiary or a sibling of the beneficiary. A beneficiary can use no more than $10,000 in withdrawals from all 529 accounts to pay down qualified education loans. Distributions from 529 accounts to a sibling also have a $10,000 limit.
However, using my529 money to repay student loans will limit any income tax deductions for student loan interest.
Apprenticeships are now considered a qualified higher education expense if the apprenticeship is registered and certified with the U.S. Secretary of Labor under Section 1 of the National Apprenticeship Act. Required fees, books, supplies and equipment for participation are also classified as qualified higher education expenses.
A note on withdrawals
Currently, my529 sends withdrawal checks to the account owner, the beneficiary or the eligible educational institution—this practice will not change with the passage of the SECURE Act. Account owners or beneficiaries who wish to take advantage of the new provisions will need to withdraw funds from their my529 account and then make a payment to the apprenticeship program, qualified education loan lender/company or sibling.