Under the Tax Cuts and Jobs Act, Section 529 plan distributions after December 31, 2017 can be used for tuition at elementary or secondary (K-12) private or religious schools up to $10,000 per beneficiary per year.
However, not all states comply with the new federal provision. Approximately 30 states have language that’s compatible with the new federal law but there are about 20 states that still have to make changes to state legislation in order to comply. For example, Illinois has not yet determined whether and how the Illinois statue will be modified to include the expanded definition of qualified expenses for K-12 tuition.
If states don’t comply, families may have to pay state tax on the earnings, repay a deduction or credit already received and/or pay an additional tax penalty. For those states, taxpayers may want to wait before making a withdrawal under the new rules until further guidance or the applicable state legislation is changed.
Missouri is one state that does comply with the new law. Missouri allows residents a deduction of up to $8,000 from their Missouri taxable income, or up to $16,000 if married filing jointly, for MOST 529 plan contributions as well as contributions to other state plans. Under the MOST 529 program, there is a 7 day hold before making a withdrawal once a contribution has been made. Payments can be made directly to the school by the taxpayer and then later reimbursed by the 529 plan. Proper documentation is required for reimbursement which includes support for payments made (i.e. EFT or check) and an invoice/statement from the school.