Tax Cuts and Jobs Act – 529 Plan Changes for South Carolina

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The new federal tax law, known as The Tax Cuts and Jobs Act, that was approved by Congress and signed into law at the end of 2017, creates a benefit for individuals paying tuition for children in private or religious schools in grades Kindergarten through 12th grade. 529 Plan funds were only allowed for qualified education expenses, which was previously limited to higher education tuition, room and board, books, computers and software, but NOT for tuition for elementary through high school. The new law has added tuition for private and religious K-12 schools as an approved qualified expense. This change in law allows individuals paying for private or religious tuition for K-12 to withdraw their contributions from a 529 plan now, as opposed to having to wait until their children attend a higher education school.

Individuals may withdraw up to $10,000 of 529 funds per student, per year and use those funds for qualified expenses. The South Carolina Future Scholar 529 plan has a one day waiting period for the withdrawal of funds that are contributed by wire and a ten day waiting period for those that are deposited by check or drafted. While you may receive an income tax deduction against your South Carolina income for the contributions made to the South Carolina Future Scholar 529 plan on your personal income tax return, the longer term benefit is the ability to allow the funds to grow tax free over time.

An individual may contribute up to $15,000 dollars in 2018, which is the annual gift exemption amount per person, (married couples may contribute up to $30,000) without triggering the requirement to file a gift tax return. There is the additional option of ‘front loading’ the plan by making 5 years’ worth of contributions up front in year one (5 x $15,000 = $75,000) which amount is considered to be amortized over the succeeding five years and counts against the annual gift exemption amount each year. Withdrawals from the plan are not subject to income tax so long as they are used to pay for qualifying educational expenses, which now includes K-12 tuition for private and religious schools.

In South Carolina individuals have until April 18, 2018, to contribute to the South Carolina Future Scholars 529 plan and claim a deduction on your personal income tax return for 2017. That is correct, you can still make a contribution and claim a deduction for the 2017 tax year up until you file your 2017 return.

The amount of the actual tax savings will vary based on the amount of the contribution, the income of the contributor and the individual income tax bracket that they are in. You should always consult with a tax professional to ensure that your tax planning intentions are properly effectuated.

About the Author

Jennie Cerrati
Jennie Cerrati
Jennie Cerrati is an associate with the firm's estate planning and probate administration practice group. Jennie counsels clients on a range of estate, succession, gift transfer and wealth planning matters. She also has experience in the areas of civil litigation, real estate, collections, corporate and small business matters, domestic work and insurance defense.