Changes affecting 529 accounts

Published February 11, 2020

In December 2019, legislation was signed into law that made changes affecting Section 529 accounts, including NextGen 529. Expenses treated as qualified education expenses include, for distributions after December 31, 2018:

  •  Expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act; and
  • Amounts paid as principal or interest on any qualified education loans of either the designated beneficiary or sibling of the designated beneficiary, up to a lifetime maximum of $10,000 per individual. Distributions with respect to the loans of a sibling of the designated beneficiary will count toward the lifetime limit of the sibling, not the beneficiary. Such repayments may impact student loan interest deductibility.

For purposes of determining whether a withdrawal for higher education expenses is qualified, Maine law seeks to follow the federal definition of Qualified Higher Education Expenses. As a result, a withdrawal for a registered and certified apprenticeship program or for qualified education loan repayments for a Designated Beneficiary or a sibling of a Designated Beneficiary should be considered a qualified distribution for purposes of Maine state income tax treatment to the same extent such a withdrawal is deemed a Qualified Withdrawal under federal income tax law. However, certain provisions of Maine law may conflict with the recently expanded federal definition of Qualified Higher Education Expenses. Legislation is being considered to achieve consistency between these Maine law provisions and the recently expanded federal definition.

Maine taxpayers should consult a tax advisor regarding the state tax treatment of withdrawals for registered and certified apprenticeship programs or for qualified education loan repayments for a Designated Beneficiary or a sibling of a Designated Beneficiary. Other states’ tax laws may differ. Please consult your tax advisor for specific advice regarding such distributions in your state.

Owners of NextGen 529 accounts which have been awarded Maine Matching Grants, or are eligible for Maine matching grants, should continue to be aware that matching grants may only be withdrawn for payment to eligible institutions of higher education for the qualified expenses of the designated beneficiary (not including qualified education loan repayments or apprenticeships).