Save On Student Loan Repayment with an Idaho Ideal 529 Plan
In an effort to help ease the burden of student loan debt across the country, the SECURE Act, which was passed last December, has increased the scope of 529 educational savings plans to allow for distributions to help pay for qualified student loan debt. Prior to the passage of the SECURE Act, 529 plans in the state of Idaho could be used for many educational expenses, including K-12 and college tuition payments, but student loan debt was conspicuously excluded as a qualifying expense.
However, as of 2020, taxpayers may now direct up to $10,000 of 529 funds towards paying for qualified student loan debt. This added flexibility offers an incentive for those trying to find new, tax-advantaged ways to save for college, and is also a benefit to taxpayers whose income is too high to receive the student loan interest deduction (in 2020 the deduction is completely phased out to for married filers with an AGI of $170,000). It should be noted that the $10,000 is a lifetime limit per taxpayer, so once the $10,000 limit is reached, any excess funds used to pay off student loan debt will be taxed and subject to penalties.
With the annual contribution limit to 529 plans now up to $12,000 for married couples ($6,000 for single filers), a couple who can no longer can take advantage of the student loan interest deduction could contribute $10,000 to a 529 plan throughout the year, and reimburse themselves as they make their required student loan payments, and receive a $10,000 deduction off of their state income at tax time, amounting to over $600 of savings!
529 plans are a great instrument for saving for educational expenses, both future, and present. If you have any questions please give us a call!
Aaron Lavarias, CPA
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