529 Tax Treatment Made Permanent

With the passage of the 2006 Pension Protection Act in August and the President’s signing of the Act, the tax treatment of 529 Plans, originally set to expire in 2010, has been made permanent.

The long-sought-after 529 tax permanency provision removes the uncertainty surrounding the tax treatment of 529 plans after the year 2010 and provides college savers using 529 plans with unique tax benefits going forward. The Pension Protection Act does not help Coverdell Education Savings Accounts (ESAs), which are still facing a 2010 sunset of tax benefits contained in the 2001 EGTRRA.

In addition to the above change, this act also provides the IRS with the authority to develop regulations to prevent taxpayer abuse of 529 plans. This is to address concerns raised by the Treasury Department that 529 plans might be used for non-education funding purposes.