On December 18, 2015 the Protecting Americans from Tax Hikes (PATH) Act of 2015 was passed. Among other benefits, this legislation made some enhancements to the popular 529 college savings plan.
Since technology has become such an integral part of higher education, the tax code is now reflective of the importance computer ownership and internet access are to the learning process. With this change, computers, software, related equipment, and internet access used by the student while enrolled in college will be considered qualifying higher education expenses. Computer related expenses had previously been allowed as qualified expenses only if they were requirements by the schools.
In another change, qualified withdrawals returned to you by the college for any reason will now be eligible for recontribution back into the 529 plan within 60 days of the refund, avoiding any tax penalties. This could be the case when your student becomes ill and withdraws shortly after the beginning of a semester, making them eligible for some form of refund. Specific steps may be required by the 529 plan provider to ensure that the recontribution is treated as such and not as a new contribution, so be sure to consult with the provider and your tax advisor regarding any other implications of refunds and recontributions.
Both of these revisions are retroactive to January 1, 2015. If you purchased a computer earlier in the year for the purpose of college, you still have until December 31st to withdrawal that amount from your 529 plan now that it is a covered expense.
If you have any questions about how 529 plans can be used to tax-efficiently save for your child or grandchild’s college or to learn about different college planning strategies, please contact our Director of Financial Planning, Jonathan Stano, CFP®, at 864-552-4779 or firstname.lastname@example.org.