Federal Law Change (December 20, 2019). The Federal Consolidated Appropriations Act (2020) was signed into law by the President. It includes several new provisions related to 529 accounts, effective for distributions made after December 31, 2018:
- DISTRIBUTIONS FOR CERTAIN EXPENSES ASSOCIATED WITH REGISTERED APPRENTICESHIP PROGRAMS. Qualified higher education expenses shall include expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act (29 U.S.C. 50).
- DISTRIBUTIONS FOR QUALIFIED EDUCATION LOAN REPAYMENTS. Qualified higher education expenses shall include amounts paid as principal or interest on any qualified education loan (as defined in section 221(d) of section 529 of the IRS Code) of the designated beneficiary or a sibling of the designated beneficiary. The amount of distributions treated as a qualified higher education expense under this paragraph with respect to the loans of any individual shall not exceed $10,000 (reduced by the amount of distributions so treated for all prior taxable years).
As of the date of this notice, these withdrawals do not constitute “qualified expenses” for Illinois income tax purposes. Thus, if an Illinois income tax deduction was previously claimed for contributions to a 529 account and withdrawals for the above purposes are made, all or part of the deduction previously claimed may be added back to income for Illinois income tax purposes.
Please consult with your tax and legal advisor.