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Questions about 529 Tax Law Changes?

How will the recent tax law changes impact my account in the NC 529 Plan?

On December 22, 2017, the President signed the Tax Cuts and Jobs Act into law. On June 12, 2018, the North Carolina General Assembly passed the budget act, incorporating the federal tax changes for 529 accounts into state tax law.

There are two main tax law provisions that impact NC 529 Plan accounts. These include:

  1. Withdrawals from 529 accounts to pay for K-12 (Kindergarten through 12th grade) tuition
  2. Rollovers from 529 accounts to ABLE accounts

These changes are effective beginning this 2018 tax year.

1. If I am a NC taxpayer, may I use my NC 529 assets to pay for K-12 tuition?

  • Yes! The use of NC 529 assets for this purpose is now considered a "Qualified Withdrawal."
  • 529 assets can be used to pay up to a total of up to $10,000 annually per beneficiary (student) in tuition expenses for attendance at public, private or religious K-12 schools.
  • The total amount withdrawn from all 529 savings accounts for the beneficiary (this includes NC 529 Plan accounts and any other 529 savings accounts with other programs regardless of who owns the account) may not exceed $10,000 in K-12 tuition expenses incurred during the taxable year.
  • State tax treatment of K-12 withdrawals is determined by the state where the taxpayer files state income tax. You should consult your tax advisor about your personal circumstances.
  • Account owners may begin using their NC 529 accounts to pay K-12 tuition expenses on or after January 1, 2018.

2. If I am a NC taxpayer, may I rollover my NC 529 assets to an ABLE plan?

  • Funds in a 529 account may be rolled over to an ABLE account owned by either the 529 account's designated beneficiary or a member of the family of the 529 account's designated beneficiary.
  • The rollover amount will count toward the current annual ABLE account contribution limit.
  • Consult with your tax advisor for any questions you may have regarding your personal circumstances.
  • Consult with the ABLE program to which you are rolling over funds for any questions you may have about the ABLE account.

  • What is an ABLE account?
    • An ABLE account is a tax-advantaged savings account for eligible individuals with disabilities to use for their qualified disability expenses.
    • For more information about opening an ABLE account or rolling over 529 account assets to an ABLE account, go to https://savewithable.com/nc/home.html.

Now that the State of North Carolina has aligned the state tax rules affecting 529 accounts with the recent federal law changes, we are working to update our website and materials to incorporate these changes. As always, we encourage 529 account owners to consult a qualified tax advisor about their personal situations.