As enacted into law, H.R.1 expands the ways 529 education savings plans can be used. For example, 529 plan funds can now be used for public or private (including religious) elementary and secondary school expenses. And certain accreditation programs (e.g., trade schools, certificate programs) will now also qualify for tax-free 529 plan payments. On student loans, the new law extends the exclusion from tax liability of employer-paid student loan payments and allows tax-free discharge of student loan debt in the case of death or disability.
The 529 plan changes made by H.R.1 include expansion of the list of education expenses that can be paid with tax-free 529 plan funds—these include expenses related to enrollment or attendance at an elementary or secondary school, including curriculum materials, books, online educational materials, some testing fees, and certain educational therapies for children with disabilities. The new law also allows use of 529 plan money to pay for certain post-secondary certificates, trade schools and other credentialing programs.
The new law continues the rule (that was set to expire at the end of 2025) that allows employers to pay up to $5,250 per employee per year in student loan payments without triggering income tax liability on the employees. It also exempts from income tax the amount of student loan debt discharged due to a student’s death or disability.
Prospects: The Treasury Department is expected to release guidance soon on the implementation of the new student loan and 529 plan rules.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org