The SECURE Act - Expanding Eligible Expenses for 529 Accounts

| February 03, 2020
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The following is part 4 of a 5-part series on the SECURE Act.

Under the SECURE Act, tax-favored savings accounts known as 529 plans can now be utilized to help pay off the beneficiary’s student loan debt up to a $10,000 lifetime maximum. 

Furthermore, a simple, nontaxable change of the 529 beneficiary allows a distribution to be applied to a different child. If a beneficiary has $50,000 in his/her 529 account and does not need this full amount to cover qualified education expenses, then all or a portion can be transferred to an eligible relative of the beneficiary. Then, $10,000 of that $50,000 can be used to pay toward student loan debt.

It is important to keep in mind the ramifications of using withdrawals for purposes other than qualified education expenses. In doing so, the earnings will fall subject to a 10% federal tax penalty, whilst having federal and state (if applicable) income taxes imposed, too. 

In addition, the new law also grants 529s the ability to pay off certain apprenticeship program expenses.

If your objective is to assist in paying off student loans, the SECURE Act can influence parents, grandparents, and others to do so without affecting a student’s financial aid eligibility. Rather than paying tuition directly from your 529 account, individuals and families can now wait and use the funds to help repay student loans in the future, which can be quite beneficial. In the article below, these changes and effects are explained further, providing you with an in-depth analysis of the impacts that the SECURE Act can have on strategies for tackling student loans and other expenses. 

If you have any questions or concerns, please call our office so we can assist you in understanding and determining the best course of action to take.

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1. https://www.forbes.com/sites/katiepf/2019/12/21/you-can-now-use-a-529-plan-to-repay-student-loans/#630807514aab  

2. https://www.edmit.me/blog/to-whom-can-i-transfer-the-money-in-a-529-plan

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