Though the new Tax Act permits a 529 plan distribution of up to $10,000 per year for a beneficiary’s public, private or religious school tuition, that expense might not count as a “qualified withdrawal” for New York’s 529 plans.

The distribution must be for qualified higher education expenses at an eligible educational institution for it to meet New York's definition of a qualified withdrawal. Otherwise, the earnings could be taxable for New York and it could trigger a recapture of the New York tax deduction for the contribution going in.

It would be worth waiting to see what clarification comes out as to how the Act’s new rule would work for New York’s 529 plan before you decide if using a New York 529 plan for this purpose makes sense for your situation (as always, it depends!).

Cindi Turoski is a managing member of Bonadio Wealth Advisors based out of our Albany, NY office.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.


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