State-level laws often take time to catch up with new federal laws, and often times, never align exactly. The funding of K-12 education using 529 plans in Minnesota is no exception. Federal tax law now provides that 529 plans can fund a K-12 education through distributions tax-free up to $10,000. However, Minnesota tax statute does not consider K-12 tuition as a qualifying expense of 529 plan dollars. This discrepancy creates a misalignment when preparing taxes. Thus, taxpayers who are considering it should weigh the consequences. Luckily, Laura Bereiter, CPA, CFP®, recently contributed to a MNCPA blog post about just this issue.
529 Plans for Funding K-12 Education
In the post, Laura asserts that Minnesota families will need to add any 529 plan distributions used for K-12 education to their taxable MN income. In addition, taxpayers may have to pay back deductions or credits received related to past contributions. The entire thing is complicated, she explains, and the use of a CPA is a good step for families to understand the implications prior to making any irreversible decisions.
Laura suggests using other sources for funding a K-12 education, thereby allowing for longer tax-deferred growth of the 529 plan assets and simpler tax treatment. Minnesota also has education subtractions and credits, though the credit is subject to income phase-outs (the subtraction is not). She suggests checking with your CPA to see which one is most beneficial for your situation. Ultimately, working with a CPA for tax strategy is a wonderful way to understand the impacts.
Conformity Task Force
In addition to this contribution to the MNCPA Perspectives blog, Laura is busy assisting with a conformity taskforce. The MN Society of CPAs convened this taskforce in the spring. The group is focused on the Tax Cuts and Jobs Act of 2017 and how MN has, and will, adapt our state-level tax code. The taskforce is going to work to interpret, address and communicate discrepancies to help educate CPAs and taxpayers alike.
Laura Bereiter, CPA, PFS™, CFP® joined White Oaks Wealth Advisors in October 2015. She offers comprehensive wealth, tax, and estate planning to the firm’s clients.