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Recent Federal News
President Obama signed the Protecting Americans from Tax Hikes (PATH) Act
(December 21, 2015) - President Obama signed the Protecting Americans from Tax Hikes (PATH) Act on December 18, 2015 which makes several changes affecting 529 plans, RETROACTIVE TO THE BEGINNING OF 2015.
1) Qualified higher education expenses (QHEE) includes expenses for the purchase of (1) computers and certain peripheral equipment under the control of the computer (e.g. printers); (2) Internet access and related services; and (3) computer software. Such purchases are only qualified if the items are to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible education institution. Expenses for computer software that is designed for sports, games, or hobbies is generally excluded, unless the software is predominantly educational in nature.
2) A refund by an eligible educational institution of qualified higher education expenses paid with funds from a 529 plan can be recontributed to a 529 plan for which the student is the beneficiary in order for distributions to avoid inclusion in income. A recontribution must be made no more than 60 days after the date of the refund, and the recontributed amount cannot exceed the amount of the refund. A special transition rule provides that refunds received after December 31, 2014, and before December 18, 2015, may be recontributed not later than 60 days after the date of enactment.
3) Multiple accounts in a 529 program with the same owner and beneficiary no longer must be aggregated for purposes of computing the earnings portion of a distribution. Instead, the earnings portion of a distribution will be computed by each 529 program on an account-by-account basis.
Also under the PATH Act, the American Opportunity Tax Credit, which was scheduled to revert to the old HOPE Scholarship credit at the end of 2017, is now permanent. The above-the-line deduction for qualified tuition and fees is extended through 2016.
A point of confusion concerns Section 529A ABLE accounts. The Joint Committee on Taxation description of the PATH Act refers to a provision that would permit limited rollovers from a 529 account to a 529A account without penalty. However, the rollover change does not appear to be part of the final PATH Act. The law does remove the requirement that ABLE accounts be established only in the state of residence of the ABLE designated beneficiary or a contracting state.
New FAFSA timing rules may affect 529 plans
(September 16, 2015) - The U.S. Department of Education has announced new income reporting rules for the FAFSA, beginning with the 2017/18 school year. Instead of using prior year income as "base year" income, the FAFSA will use prior-prior year income. For example, the FAFSA will report 2015 calendar year income for the 2017/18 EFC determination instead of 2016 calendar year income.
The new rules offers grandparents greater flexibility in tapping their 529 accounts for grandchildren. Instead of waiting until the year the grandchild begins their final year of college, they need only wait until the junior year of college which typically includes the second semester of sophomore year. By waiting until then the 529 plan will have no impact on federal aid under either asset-inclusion or income-inclusion.
The 2016/17 FAFSA rules will remain the same as current treatment.
H.R. 529 passes in House vote
(February 25, 2015) - The House passed bill H.R. 529 today in a vote 401 - 20. This bill would expand the qualified expenses for 529 plans to include computer equipment, software, or internet access expenses used for college, and would allow the re-depositing of funds to a 529 plan without penalty if the student withdraws from college.