Tax Law Brings Changes for Investors


Of all the events of 2017, the one that will have the longest-lasting effect should be the passage of the much-anticipated tax bill in December. The new tax bill brought numerous changes to the tax code, many of which you have probably heard or read about by now, including:

• a reduction in both the number of tax brackets and the tax rates within
each bracket.
• higher standard deduction amounts, which should have the effect of fewer
filers being able to itemize deductions.
• a cap on certain deductions, including $10,000 for state, local, property,
and sales tax.
• retaining the Alternative Minimum Tax (AMT), but narrowing the number
of filers to which it applies.
• modifications to the mortgage interest deduction, including a lower cap
and the elimination of the ability to deduct home equity debt.
• a doubling of the base exclusion for the estate tax to $11.2 million,
indexed for inflation.
• changes in the percentage limits for charitable deductions.

While all these changes are important, I wanted to highlight one more that
is potentially impactful. 

As many of you know, 529 accounts were established to allow families
to save for “higher education,” which was traditionally defined as college or
graduate school. Since anyone can contribute to the 529 for the child’s benefit,
often grandparents are the largest contributors. Funds contributed to 529 accounts grow tax-free and withdrawals are tax-free, as long as the funds are used for qualified educational expenses,” defined in the tax code as “tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution.” Additional expenses are also allowed for computers, software, and room and board.

Under the new tax bill, beginning in 2018, account owners can now also
use up to $10,000 each year to help pay for private K-12 education. This is a
meaningful change that could be used to front-load 529 accounts and withdraw $10,000 out each year for K-12 private school, and then use the remaining amount for college and graduate school.

This change has many states that offer tax breaks for contributions to 529 accounts worried that their tax revenue will decline, as more people decide to take advantage of the breaks. Time will tell as to what the net result will be and whether states reduce or eliminate the credit and deductions offered.

David Novak, CFP® is a Certified Financial PlannerTM at Novak & Powell 
Financial Services in Pinellas County. Please note: he is not an attorney and this article should not be construed as one offering legal advice. For information about investment decisions and financial planning, contact him at (727) 451-3440.


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