The Tax Cuts and Jobs Act, characterized as the first major reform of the Internal Revenue Code in 31 years, brings a lot of changes to individuals and businesses alike.
The legislation slashes the top corporate tax rate to 21 percent, lowers the top marginal rate for individual taxpayers to 37 percent, eliminates or scales back several popular deductions, reduces taxes on business income earned by pass-through businesses, doubles the estate tax exemption, and substantially enhances immediate expensing of capital investments.
It also impacts how families save for college—especially with respect to 529 plans. But there are some details still being worked out. Let’s explore.
Designed to promote saving for future college costs, a 529 plan is a tax-advantaged savings plan authorized by Section 529 of the Internal Revenue Code. Sponsored by every state and the District of Columbia, there are two types of 529 plans: Prepaid Tuition Plans and College Savings Plans.
In simple terms, a Prepaid Tuition Plan allows you to effectively lock-in tuition costs to avoid tuition inflation; whereas, a College Savings Plan is a tax-advantaged investment account.