Status Board: SECURE Act 529 State Updates
By Paul Curley, CFA | paul.curley@issmarketintelligence.com | January 19, 2020Which states have passed, have not passed and will or will not pass enabling legislation to include student loans and apprenticeships as 529 qualified expenses for state tax purposes?
On December 20, 2019, President Trump signed the SECURE Act. Among the act’s sweeping changes were two provisions for the 529 and education financial planning market with effective dates of after December 31, 2018. The two provisions relating to 529 plans include the expansion of qualified distributions at the federal tax level to apprenticeships and student loans. First, the expansion to student loans includes interest and/or principal on any qualified education loan for the 529 beneficiary or sibling of the 529 beneficiary. There is a $10,000 lifetime cap per person. Second, the expansion to registered apprenticeships includes fees, books, supplies, and equipment required for an apprenticeship program as defined by the Department of Labor.
While 529s have been the premier college savings vehicle, this change serves to open up the market dramatically in two ways. First, the expansion of 529 plans to student loans broadens the product usage from saving and paying to repaying as well. Therefore, 529s plans can help families throughout the entire college financial planning cycle of effectively saving, paying and repaying the cost of education. Second, the expansion of 529 plans to apprenticeship and credential programs further broadens the definition of education from higher education to K-12 expenses, and now to registered apprenticeships and credential programs as well. Not only will this broaden the definition of qualified higher education expenses by fortifying and rebuilding initial career tracks into employment but will help families retool and refocus their mid-careers as well. Together, investors will not only be able to use 529 plans in a wider variety of circumstances but the change can serve to attract more individuals to 529s as well. It encourages savers to start earlier, helping shore up future accumulations, while encouraging more investors to open 529 accounts in the first place. As promising as this development is, state legislators needed to, or will need to, take steps to resolve uncertainty from the discrepancy between past and current legislation as state legislation does necessarily follow federal legislation.
The status board below provides a current update on which states have passed, are expected to pass or have not passed enabling legislation to include student loans and/or apprenticeships as a 529 qualified expense for state tax purposes. This is important as non-passage might make the 529 withdrawal for student loans and/or apprenticeships to be considered a non-qualified distribution subject to state tax recapture of any state income tax deduction previously taken. Also, please note that the status board below provides a list of states as opposed to 529 plans as the state tax treatment of any withdrawal is determined by the account owner’s state of residence and/or employment, not which 529 plan they participate in.
Based on public information from legislation, public announcements, 529 plan providers, state agencies and plan disclosure statements and amendments, the following provides a list of states that have and have not passed enabling legislation, and the list will be updated going forward as news is received from their various sources. To help keep track of when the last update took place, the “last updated” date will be reported below the list of states. Also, please contact the editor of the 529 Dash e-newsletter and 529 Insider website with any new sources and/or suggested updates to the list.
Allow Student Loans & Allow Apprenticeship Withdrawals State Tax Free: 47 states
Not Allow Student Loans & Allow Apprenticeship Withdrawals State Tax Free: 2 state
Not Allow Student Loans & Not Allow Apprenticeship Withdrawals State Tax Free: 1 states
Not Clear or Decision Pending: 1 states
Last Updated: September 24, 2024
Editor’s Final Note: One should consult a qualified tax specialist regarding their individual situation before making a withdrawal for student loans or apprenticeship related expenses, and before making a contribution which they intend to use for student loans or apprenticeship related expense. Also, we suggest that you contact your 529 plan provider, review your 529 plan provider’s website and read your 529 plan’s disclosure statements for announcements related to this update.
Thank you for your feedback and suggestion to write this summary, and we will continue to track, provide links to sources and write about these types of legislative updates going forward. In the meantime, have the education financial planning discussion with your clients today.
While 529s have been the premier college savings vehicle, this change serves to open up the market dramatically in two ways. First, the expansion of 529 plans to student loans broadens the product usage from saving and paying to repaying as well. Therefore, 529s plans can help families throughout the entire college financial planning cycle of effectively saving, paying and repaying the cost of education. Second, the expansion of 529 plans to apprenticeship and credential programs further broadens the definition of education from higher education to K-12 expenses, and now to registered apprenticeships and credential programs as well. Not only will this broaden the definition of qualified higher education expenses by fortifying and rebuilding initial career tracks into employment but will help families retool and refocus their mid-careers as well. Together, investors will not only be able to use 529 plans in a wider variety of circumstances but the change can serve to attract more individuals to 529s as well. It encourages savers to start earlier, helping shore up future accumulations, while encouraging more investors to open 529 accounts in the first place. As promising as this development is, state legislators needed to, or will need to, take steps to resolve uncertainty from the discrepancy between past and current legislation as state legislation does necessarily follow federal legislation.
The status board below provides a current update on which states have passed, are expected to pass or have not passed enabling legislation to include student loans and/or apprenticeships as a 529 qualified expense for state tax purposes. This is important as non-passage might make the 529 withdrawal for student loans and/or apprenticeships to be considered a non-qualified distribution subject to state tax recapture of any state income tax deduction previously taken. Also, please note that the status board below provides a list of states as opposed to 529 plans as the state tax treatment of any withdrawal is determined by the account owner’s state of residence and/or employment, not which 529 plan they participate in.
Based on public information from legislation, public announcements, 529 plan providers, state agencies and plan disclosure statements and amendments, the following provides a list of states that have and have not passed enabling legislation, and the list will be updated going forward as news is received from their various sources. To help keep track of when the last update took place, the “last updated” date will be reported below the list of states. Also, please contact the editor of the 529 Dash e-newsletter and 529 Insider website with any new sources and/or suggested updates to the list.
Allow Student Loans & Allow Apprenticeship Withdrawals State Tax Free: 47 states
- Alabama (Source: 1)
- Alaska (Note: No state income tax.)
- Arizona (Source: 1, 2, 3)
- Arkansas
- California (Source: 1, 2)
- Connecticut
- Delaware (Source: 1, 2, 3)
- District of Columbia (Source: 1, 2)
- Georgia
- Hawaii (Source: 1)
- Louisiana (Source: 1)
- Kansas
- Kentucky (Source: 1 on HB 331)
- Florida (Note: No state income tax.)
- Illinois
- Iowa (Source: 1)
- Idaho (Source: 1)
- Maine (Source: 1)
- Maryland (Source: 1)
- Massachusetts (Source: 1, 2, 3, 4)
- Minnesota
- Missouri (Source: 1)
- Montana (Source: 1)
- Nebraska (Source: 1)
- Nevada (Note: No state income tax.)
- New Hampshire (Source: 1; Note: No state income tax.)
- New Jersey (Source: 1)
- New Mexico (Source: 1)
- New York (Source: 1)
- North Carolina
- North Dakota
- Oklahoma (Source: 1)
- Ohio (Source: 1, 2)
- Oregon (Source: 1, 2)
- Pennsylvania (Source: 1)
- Rhode Island
- South Carolina
- South Dakota (Note: No state income tax.)
- Tennessee (Note: No state income tax.)
- Texas (Note: No state income tax.)
- Utah (Source: 1)
- Vermont (Source: 1)
- Virginia
- Washington (Note: No state income tax.)
- West Virginia
- Wisconsin (Note: Per plan disclosure statement)
- Wyoming (Note: No state income tax.)
Not Allow Student Loans & Allow Apprenticeship Withdrawals State Tax Free: 2 state
Not Allow Student Loans & Not Allow Apprenticeship Withdrawals State Tax Free: 1 states
- Michigan (Source: 1)
Not Clear or Decision Pending: 1 states
- Mississippi
Last Updated: September 24, 2024
Editor’s Final Note: One should consult a qualified tax specialist regarding their individual situation before making a withdrawal for student loans or apprenticeship related expenses, and before making a contribution which they intend to use for student loans or apprenticeship related expense. Also, we suggest that you contact your 529 plan provider, review your 529 plan provider’s website and read your 529 plan’s disclosure statements for announcements related to this update.
Thank you for your feedback and suggestion to write this summary, and we will continue to track, provide links to sources and write about these types of legislative updates going forward. In the meantime, have the education financial planning discussion with your clients today.