Earlier this morning I provided a short update on 529 accounts and how the law was expanded to permit distributions from 529 accounts to pay some K through 12 expenses, not to exceed $10,000 in a year.

That update triggered a couple of follow up questions, which I will try to address:

  • Michigan Maximum Balance: A Michigan 529 account can hold up to $500,000.
  • Michigan State Tax Deduction: Michigan permits a state income tax deduction of $5,000 for a single taxpayer contributor, and $10,000 for taxpayers filing jointly who contribute to a 529 account.
  • Michigan Position on K-12 Expenses: A visit to the Michigan 529 website this morning does not reveal any update to the Michigan 529 plan to permit K-12 distributions. Simply that the website has not been updated to reflect the recent change in law last December. Consequently, the answer is that we do not yet know how Michigan will respond to permit K through 12 expenses to be paid from a Michigan 529 account.
  • State Reactions to K Through 12 Expense Opportunity: These lists are growing as states begin to announce their respective positions on the use of existing 529 accounts to pay K through 12 expenses. Some state laws are written in a way that they automatically reflect the federal expansion of permissible distributions from a 529 account for K-12 expenses, while other states will need to formally amend their laws to permit the K-12 distributions. Other states, for lost revenue purposes, have announced there will be no immediate change to their 529 laws, effectively saying to their account owners that distributions from a 529 account in that state for K-12 expenses like private school tuition will be both taxable and subject to the 10% penalty for distributions for ‘non-higher education expenses.’

Permitting States: Alaska, Delaware, Georgia, Kentucky, Maryland, Mississippi, Missouri, Nevada, North Carolina (yesterday), South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Wisconsin.

Denying or Announced they simply do not know yet States: Colorado, Connecticut, Illinois, Iowa, Nebraska, New York, Ohio, and Vermont.