So is anybody here talking about the Secure Act? One of the items that pertains to this site is 529s can be used for up to $10k of student loan repayment, as well as covering expenses for apprenticeships.
I like the idea of being able to leave some money in my 529 to grow. I’m wondering if I qualify for the AOTC (which would get me 10k back in tax credits over 4 years) if I’d be able to then turn around and use the 529 to pay off a student loan? I didn’t see any language in the bill that mentions anything about that. In my state 529 we get a state tax deduction for contributions. Will have to watch how this plays out.
This is the first time I’ve heard of this. Your link was very helpful. Note that this has been passed by the House and is now – ummmm – sitting in the Senate.
The House passed it on Tuesday and the Senate today. I don’t know what you meant by it, but that’s not much sitting on. The Congress seem to get a lot done lately. Is this a political statement?
I thought this was dead after passing the House a while back. Somehow it piggybacked on the spending deal. Probably the only was to get legislation through the Senate these days.
What do you mean by
AFAIK, there’s not requirement to remove money at any time. The beneficiary can be changed to someone else at any point. I’m planning for my D’s unused amount to remain in her name until she has children, then switch to the child’s name. It should be able to grow for decades.
Since beneficiaries could always be changed, I don’t see the big deal of being able to pay debt of a sibling. You could always change the beneficiary to that sibling.
Regarding using money to pay student debt - if there was money in a 529, why was a loan taken in the first place? Betting on returns vs. accrued interest?
@Iglooo : It wasn’t meant as a political statement. When I looked at the “progress bar” in the link, it showed that it had been passed by the House. Since it’s now Christmas recess, I assumed it was just sitting in the Senate.
I second this question: "If there was money in a 529, why was a loan taken in the first place? "
This is a sweetener to repay those student loans, especially in states where one can get a tax deduction for 529 contributions. You contribute to the 529, get a break on taxes, make loan payments from the 529.
It’s not going to help those who are so strapped that any payment whatsoever is problematic.
The part that affects many of us is the shortening of the “stretch” period on inherited IRAs.
Now the inherited IRA can usually be stretched over the beneficiary’s lifetime. With the SECURE act, the inherited IRA can only be stretched for 10 years. So more tax revenue comes in to the Treasury sooner.
@cptofthehouse has the strategy down right! I don’t have enough $ in 529 to pay all tuition. We make due with scholarships, kids working, some loans up to 10k cause we get that back through the AOTC. I usually but the tax credit $ in a CD then use it to pay the 10k loans b4 the grace period ends(we qualify for subsidized loans). Now I’m thinking I can take the AOTC credit, deposit in 529, get state tax break, use 529 to pay 10k loans we took out.
We paid for kids’ college using 529s as a state tax free conduit. It was a savings of 5-10%. A regret was that the loans we took out for our first child did get paid with after tax dollars. If something like this were in effect back then, we would have basically had interest free loans with the savings.
It may be possible for those who qualify for the deduction for loan interest pay to get additional tax bonus (on the state level) if this gets passed.
The fact of the matter is that’s it’ll be a good thing if more student loans get repaid. There are people with money sitting in 529s, waiting for possible school use, but nothing in mind. Trying to access the money can involve complicated recapture laws and procedures if a state tax deduction was taken, and of course , payment of federal tax on the earnings. The money is going to a good place repaying school loans
I also thought one of the provisions is a change in when RMDs need to be started - increase from 70.5yo to 72yo. That’ll give DH and extra year to do Roth conversions to decrease what’s in his traditional IRAs.
Given the way our parents’ generation saved vs. ours and our children’s this is going to be significant. Families with young children are going to need to be particularly careful. Taking the distributions earlier moves the money out of the protected “retirement savings” classification, but delaying could mean taking the distributions when they would count as income. (Note that this really is no longer a “stretch” period, as one could delay the entire distribution until the 10th year - possibly a good option if your children will be through college by that point).
I’m excited about provisions for grad students to use stipend, fellowship , etc money that is unearned income to be considered “earned” for purposes of contributing to IRA. Our PhD student has been adding to a Roth but very little of her income qualified to be matched so it was usually just amounts from part-time and summer jobs. We will prob help her maximize contributions to not have her be so far behind when she gets out of school.
I don’t know either. I have only seen one mention of that change, but no mention of date.
Whereas the repeal of the new version of the kiddie tax introduced with the Tax Cuts and Jobs Act (TCJA) is optionally retroactive to 2018. Apparently you can elect to have it apply to the 2018 and 2019 tax years, I guess by amending 2018’s tax filing? The effective date of the ‘new/old’ rate is supposed to begin with the 2020 tax year. Hopefully IRS guidance will be forthcoming.
In other words, trust marginal tax rates repealed repealed for 2020 onward, and you can elect trust or parent’s marginal tax brackets for 2018 and 2019.
One work around is to do Roth conversions, i.e., when first retired, consider taking down tIRA money and coverting it to a Roth IRA. You pay the tax today and it’s tax-free to your heirs. (until the law changes again!)
One thing I’ve read is that folks who inherited an IRA prior to 12/31/2019 are grandfathered in and can still collect their RMDs as usual rather than within 10 years of the original grantor’s death.
Since H inherited an IRA, I was curious enough to do sone digging. I’m sure the details will be spelled out more clearly going forward.