Although the SECURE Act (“Setting Every Community Up for Retirement”) was largely focused on retirement rules (e.g. changing RMD age from 70 ½ to 72) several provisions were included that impact an important way many of us save for the education of our children.

So-called §529 plans – a tax-deferred and possibly tax-free means of savings for K-12, college and related expenses – were given additional flexibility.  Let’s take a look at what was included in the SECURE Act:

Leftover Funds

Although §529s now have expanded uses the traditional use has been to save for college.  What if a student doesn’t use all of his/her funds?  Maybe graduation takes three years instead of four.  Maybe mom and dad saved for Harvard but little Johnnie or Susie attended the less expensive Bunker Hill Community College.

Traditionally options were to hold funds inside the account (in the event Johnnie or Susie pursues additional education) or change the beneficiary to another qualifying family member (such as a sibling).

Under the SECURE Act a family may take a tax-free distribution of up to $10,000 (a lifetime limit – not per year) for student loan repayment.  Both principal and interest portions of loan payments qualify.  Note, however, that to avoid ‘double dipping’ the student loan interest is not eligible for a federal income tax deduction.  Similarly the earnings portion of the distribution from the §529 reduces the $2,500 annual limit on student loan interest deductibility.

An interesting planning point would be to continue making contributions to §529s after graduation.  It’s perfectly acceptable as there is no time limit on contributing to §529s.  Why make post-graduation contributions?  Many states offer an immediate income tax deduction.  Conceivably a contribution could be made, a state tax deduction received and then a withdrawal could be made to pay post-graduation loan debt.

Apprenticeship Programs

The SECURE Act permits the use of funds inside of §529s to be used for an apprenticeship program that may offer college credits in addition to job training.  Expenses that would qualify include books, fees and equipment required for the apprenticeship.

The program must be certified by and registered under the National Apprenticeship Act.  Here’s how to find one.