Congress Improves 529 Plan Rules

Tweaks to the rules for 529 college savings plans may put more money back in your pocket.

As 2015 drew to a close, Congress made two improvements to 529 plan rules.

The first now permits you to use 529 funds for the purchase of a computer. Previously, money from a 529 account could be used to buy a computer only if your student’s college required students to have their own computer as a condition of enrollment. But now computers, peripheral hardware, software and Internet access all are considered qualified educational expenses as long as the devices are primarily used by the student while enrolled in school. The policy change is retroactive for the 2015 tax year.

The second change deals with refunds. When a student is given a refund of a qualified higher education expense from his or her college or university, 529 account owners can now put that money back into the 529 plan. These “re-contributed funds” will not have taxes or penalties associated with them.

In addition, a special transition rule permits refunds received after December 31, 2014 and before December 18, 2015 (the date the law was enacted) to be re-contributed by Feb. 16, 2016 (60 days after the law was enacted) without incurring taxes or penalties.

For more information, contact one of our advisors today.