529 Student Loan Repayment Plans

529 Student Loan Repayment Plans

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed by President Trump, which aims to improve savings habits in the United States. The legislation extends the benefits of 529 college savings plans, including the inclusion of student loan repayments and the costs of apprenticeship programs as eligible expenses. The new Act applies to 529 plan distributions which were made after December 31, 2018.

An earlier version of the bill also included additional provisions for 529 plans, but these extensions were removed in early 2019. For example, final legislation does not include provisions allowing 529 plans to pay for therapy studies at home or educational pupils with disabilities or the extension of expenditure of qualified K-12 expenses for 529 policy.

529 intends to repay the student loan debt

The SECURE Acts allows families to make 529 tax-free distributions for student loans. Principal interest and payments for an eligible student loan will be considered qualified expenses for the 529 plan. However, the portion of interest on the student loan that is paid on income from the 529 tax-exempt plans is not eligible for the interest deduction student loan.

The law provides a total limit of $ 10,000 for qualified loan repayments for each 529 beneficiary plan and $ 10,000 for each of the beneficiary's siblings. The sibling can include a sister, brother, half-sister or half-brother. The owner of a 529 plan account can change the recipient of the 529 plan whenever he/she chooses to without tax consequences.

Countless families use a combination of income, 529 savings plans, and student loans to pay for a college education. Since there is no time limit for 529 plans, the student can continue to contribute to a 529 plan at university or graduation and use the remaining funds to repay non-student loan tax.

The expansion is also an opportunity for grandparents who wish to help a grandchild pay for their education without compromising their eligibility for financial assistance. Distributions from a grandparent's Plan 529 are considered student income that is not taxed in the Federal Student Aid Application (FAFSA) and can reduce the amount of student financial assistance by up to 50 % of the distribution amount. Grandparents can avoid it if they wait until January 1 of the second year of college when this will no longer affect FAFSA's non-taxable income to distribute Plan 529 or wait for students to graduate. 

529 intends to pay Apprenticeship 

The SECURE Act also allows the use of 529 learning payment plans. To be considered an eligible expenditure of the 529 plan, the apprenticeship program must be registered and certified with the Labor Secretariat in accordance with article 1 of the National Apprenticeship law. The Labor Department offers a search tool to find out if a particular apprenticeship program is eligible.

Employers offer apprenticeship programs and provide on-the-job training and education to prepare workers for a specific career. Apprenticeship is used in many fields, such as information technology, manufacturing, construction, energy, health care, and logistics. According to the United States Department of Labor, apprentices receive an average starting salary of $ 15 an hour.

Some apprenticeship programs offer college credits at a community college or four-year university. Apprenticeship costs vary depending on the employer and the type of vocational training. In many cases, the employer covers all or part of the education. Under the SECURE Act, the non-taxable distributions from 529 plans can be used to pay the following expenses associated with apprenticeship programs:

  • Commission
  • Manuals
  • Consumables
  • Equipment, including necessary commercial tools.

Child Tax

The SECURE law also includes changes that reduce the child tax, which is the passive child income tax for interest expense, dividends, taxable purses, capital gains, and donation accounts and guard.

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