PATH Law Updates 529 Rules

If you are a parent or grandparent of college student with a 529 plan, we have great news to share.  On December 18, 2015, Congress approved the Protecting Americans from Tax Hikes (PATH) Act of 2015, which includes several changes affecting 529 plans.  President Barack Obama signed the bill into law the same day.

What does this mean to you?

  1. Qualified higher education expenses now includes the cost of  a computer, laptop, or other technology (including internet access and computer software) used “primarily” by the beneficiary of the 529 Plan who is enrolled at an eligible institution.  Previously, computer equipment was only a qualified expense if it was “required” by the school.  Overall, this is excellent news for funders of 529 plans.  Now, not only will this account benefit your student with college tuition, but also with the many technology costs that go along with receiving a quality education in the 21st century.
  2. Under the PATH Act, account owners now have the ability to “recontribute” a refund received for an expense paid for with 529 plan funds. If your college student enrolls for a semester and then needs to withdraw unexpectedly due to an illness or unforeseen circumstances, under the new law, refunded money that meets certain requirements can be put back into the 529 plan within 60 days.  The refund must be from an eligible educational institution (i.e. the university) and the expenses must have been “qualified higher education expenses”.  It is important to understand which expenses are considered “qualified” to ensure refunded monies are allocated properly back into the appropriate fund.  As an example, refunds from sorority or fraternity dues do not qualify.
  3. The refund/redeposit benefit is retroactive back to January 1, 2015.  Therefore, if you have a student that has received a refund from a qualified institution between January 1, 2015 and December 18, 2015, the date the law was enacted, you have until February 16, 2016 — 60 days from the enactment date, to redeposit the money.  Otherwise, if you receive a refund after December 18, 2015, you have 60 days from the date of the refund to redeposit the money.  When redepositing refunded monies, it is essential to follow the strict timeline the PATH Act outlines.
  4. Lastly, multiple accounts for the same 529 plan beneficiary no longer need to be aggregated for purposes of calculating the taxable gain if there were distributions in excess of the total qualified higher education expenses.

Overall, the PATH Act will not only assist your student in acquiring the tools necessary to be successful, but will help protect the value of the 529 plan.  For more information on this new law or to review your unique situation, do not hesitate to contact your TFA advisor.

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