Questions about 529 Tax Law Changes?
What Does the Recent Federal Tax Reform Mean for My NC 529 Account?
The bottom line is: If you’re a North Carolina taxpayer, check with a qualified tax advisor before using your NC 529 funds for K-12 tuition expenses or before rolling over to a 529 ABLE account. North Carolina has not yet expanded state tax law to correspond to the recent federal changes. Until more clarity is provided, there is a risk that these withdrawals would not qualify for favorable North Carolina state tax treatment.
More Detail on How the December 2017 Federal Tax Reform Affects 529 Accounts:
On December 22, 2017, the president signed new federal tax legislation into law. The legislation includes the following new provisions related specifically to 529 plan accounts, beginning with the 2018 tax year:
K-12 Tuition Expenses:
- Under federal tax law:
529 account owners can use assets to pay for qualified K-12 expenses up to $10,000 per year per student. Account owners can also treat K-12 withdrawals as qualified expenses with respect to the federal tax benefit.
- Under North Carolina state tax law:
It is unclear, as North Carolina has not yet determined the state tax treatment of these withdrawals. 529 account owners should consult their tax advisors for further guidance.
Rollovers to 529 ABLE Plans:
- Under federal tax law:
529 account owners can roll over 529 plans to ABLE plans, up to the ABLE annual contribution limit.
- Under North Carolina state tax law:
It is unclear. North Carolina has not yet determined the state tax treatment of these rollovers. 529 account owners should consult their tax advisors for further guidance.
We are continuing to evaluate the federal legislation and its tax impact on North Carolina taxpayers, and we encourage account owners to consult a qualified tax advisor about their personal situations.