Changes to 529 Plan Distribution Rules

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529 PlanA Section 529 college savings plan allows you to make contributions to an investment account set up to pay qualified higher education expenses. Though contributions are not deductible on your federal income-tax return, account distributions (including earnings) are exempt from federal - and sometimes state - income taxes when used for the account beneficiary's qualified higher education expenses.

The Protecting Americans from Tax Hikes (PATH) Act of 2015 has loosened some reslrictions governing these accounts.

Expansion of qualified higher education expenses. The definition of qualified higher education expenses has been expanded tu include expenses for the purchase uf cumputer equipment, computer software, and Internet access and related services, provided these items are to be used primarily by the account beneficiary during any of the years he or she is enrolled. (Purchases of computer software designed fur sports, games, or hoblJies generally cannot qualify.)

Elimination of aggregation rule. For pllI'pOSeS of determining the taxable portion of any distribution exceeding qualified higher education expenses, there is no longer any requirement that all accounts for the beneficiary be aggregated. This means that the best strategy may be to take the distributions from the 529 account with the least amount of earnings.

60-day rule for returning distributions. Refunds of qualified higher education expenses made by an eligible educational institution will not be subject to federal income tax if redeposited ill the beneficiary's 529 accow1t within 60 days .

Charities and Politics Don't Mix

With the 2016 election season well nnoprway, nonprofit organizations claiming tax exemption und er Section 501 (c) (3) of the federal tax code - religious groups, hospitals, social service providers, and other public charities - should be careful not to violate the law's prohibition on political campaign activities.

Prohibited Activities

Participation or intervention in a political campaign on behalf of, or in opposition to, a candidate for public office is absolutely pruhibited, whether it's done directly or indirectly. This restrictiun applies to campaigns of candidates rwming for national, state, or local public office.

  • Examples of prohibited political campaign activities include:
  • Endorsing a candidate
  • Donating to a candidate's campaign
  • Allowing a candidate to make a campaign speech at an organizationsponsored event
  • Distributing materials that favor or oppose a candidate
  • Posting comments about a candidate on the organization's website or maintaining a link to only one candidate's profile on the site

Permissible Activities

Education of voters must be cunducted in a nonpartisan marmer. For example, organizations may prepare and distribute voter education guides, but they must maintain neutrality in all aspects of the publication. Lik:ewise, if the nonprofit chooses to hold a public forum, all candidates seeking the same office should have an equal opportunity to be represented or to participate.

Failure To Comply

Violating the prohibition on political campaign activities can result in revocation of an organization's tax-exempt status and the imposition of certain excise taxes. The rules goven1ing the permissible political activities of nonprofits are detailed and extensive. Contact us if we can help .


Increase in Monthly Transportation Allowance

As a result of recent legislation, the fringe benefit allowance for monthly transit passes and van pool benefits has increased to $255 per month for 2016. The legislation permanently extended a rule requiring that such allowances maintain parity with the monthly allowance for qualified parking benefits. If all requirements are met, employer reimbursements for these expenses are excluded from the employee's wages for both income- and payroll -tax purposes.


Health Savings Accounts for Retirement

The unique tax advantages of health savings accounts (HSAs) can make them a useful tool for saving for retire ment medical expenses. Contributions are deductible up to certain annual limits (for 2016, $3,350 with individual coverage under a high deductible health plan and $6,750 with family coverage). Upon reaching age 55, individuals may contribute an additional $1,000 annually. Employer contributions are generally not subject to income, Social Security, or Medicare taxes. No HSA contributions are allowed once a person is enrolled in Medicare, Investment ea rn ings in an HSA are not taxed, and account distributions are tax free when used for qualified medical expenses.

The general information in this publication is not intended to be nor should it be treated as tax, legal, investment, accounting, or other professional advice, Before making any decision or taking any action, you should consult a qualified professional advisor who has been provided with all pertinent facts relevant to your particular situation.

2016 May Pg 02