Federal 529 rules also change to allow more flexibility
Madison. February 6, 2015—In 2014, Wisconsin’s legislature modified Wisconsin’s 529 college savings plans EdVest and TOMORROW’S SCHOLAR. The changes, effective for the 2014 tax year include:
- Eligibility for deduction on contributions – The new law has expanded state income tax benefits for contributors to all Wisconsin residents, regardless of the relationship between the contributor and the Beneficiary. In the past, state tax benefits were only available to relatives (parents, grandparents, aunts, or uncles).
- Contribution deduction deadline – The contribution deduction deadline has been extended to April 15th of the following year versus December 31st. The 2014 deadline will be April 15, 2015.
- Maximum deduction limit – The legislation calls for annual indexing of the annual deductible limit to inflation. The new 2014 maximum deductible amount is $3,050, up from $3,000 per beneficiary. The 2015 deductible amount is $3,100. While this amount may continue to increase in the future, it will not decrease.
- Excess contributions for future deductions – Contributions greater than the deductible limit amount each year may now be used for subsequent year’s tax benefits. In Wisconsin, the contribution limit to Wisconsin’s 529 plans is $330,000 per beneficiary, well above the $3,050 deduction. This provision may also be used for rollovers coming into a Wisconsin 529 plan from another state’s 529 plan for the same beneficiary.
- Deductions for rollovers and non-qualified withdrawals – On or after June 1, 2014, outgoing rollovers or withdrawals not used for qualified education expenses will be added to an individual’s Wisconsin income and taxed for the amount previously claimed as a deduction. Consult your tax advisor.
Separately, a change in federal law now allows owners of 529 accounts to adjust their investment holdings twice per year, rather than the one adjustment allowed under previous Internal Revenue Service restrictions. This provides additional flexibility for rebalancing needs within the account. The new rule was part of the Achieving a Better Life Experience (ABLE) Act of 2014, which passed with the tax extenders legislation and became law in late December 2014.
“These legislative changes help college savers and encourage contributions to 529 college savings plans by broadening the number of eligible contributors, enhancing the tax benefits and increasing overall flexibility of investment changes” said Brooke Napiwocki, Wealth Advisor at Bronfman E.L. Rothschild. “We encourage families to evaluate these potential additional tax benefits with their financial advisor before the April 15, 2015 deadline in combination with a full assessment of their college savings goals and plan.”
Any U.S. taxpayer can establish a 529 College Savings Plan for use at almost any accredited post-secondary school in the U.S. There are no income or age limits for eligible participants or beneficiaries. The plan owner maintains full control of the account and can change the beneficiary of the account. Contributions to a 529 College Saving Plan should be made in conjunction with the overall goals of a family’s education funding plan.
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Creating, enhancing, and preserving wealth is the focus at Bronfman E.L. Rothschild. Through in-depth knowledge and experience, specialized wealth management advisors help families and individuals clarify their financial goals and develop a tailored strategy to meet their objectives. Overseeing more than $2 billion in client assets under management*, the firm works to understand each client’s goals and offers candid advice and guidance through the complex investment arena. The firm also serves as a consultant to corporate retirement plans overseeing investment fund selection and monitoring, providing fiduciary oversight and offering a unique Retirement Readiness education experience to plan participants. The firm’s retirement plan consulting and administration professionals specialize in assisting with the design, implementation and administration of qualified retirement plans. They also provide consulting services on a wide range of retirement plan issues including plan termination, IRS and DOL audits, and plan corrections under IRS and DOL approved procedures.
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