Policy changes related to 529 accounts were recently announced in Field Notice 2023- 24.
A key driver for the policy update was the expanded definition of qualified education expenses to also include $10,000 for K-12 tuition, in addition to various college expenses. It is important to remember this expansion through the Tax Cuts and Jobs Act was at the federal level, and not every state has adopted this definition. States currently not following the expanded K-12 definition include: California, Colorado, Hawaii, Illinois, Michigan, Minnesota, Montana, Nebraska, Nevada, New York, Oregon, South Dakota, Texas, and Vermont. Accordingly, clients may be ineligible for certain state tax benefits if withdrawals are made for K-12 expenses. An excellent resource for information about 529 plans can be found at www.collegesavings.org. As a reminder, ESI Registered Representatives (RR) do not offer tax advice and clients should be encouraged to consult their tax advisors.
The 529 Municipal Securities Disclosure (ES0699), has been updated to reflect the difference between the state and federal recognition of qualified education expenses. Also, a new disclosure checklist has been added to reinforce the material information RR’s must discuss with a customer at or prior to account opening, and requires the RR to identify information sources consulted, in addition to the 529 Program Description, if any. The new 529 Municipal Securities Disclosure form should be utilized immediately. Purchases of municipal bonds will still require the Municipal Bond Transaction Disclosure Checklist.
The ESI Written Supervisory Procedures have been updated accordingly.
QUESTIONS
If you have any questions, please contact your supervisor or ESI Operations at 800-344-7437.
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