New York May Deviate From The New 529 Rules
When the new tax rules were implemented on January 1, 2018, a popular college savings vehicle that goes by the name of a “529 plan” received a boost. Prior to the new tax rules, 529 plans could only be used to pay for college. The new tax rules allow account owners to withdraw up to $10,000 per year per child for K – 12 public school, private school, religious school, or homeschooling expenses. These distributions would be considered “qualified” which means distributions are made tax free.
Initially we expected this new benefit to be a huge tax advantage for our clients that have children that attend private school. They could fully fund a 529 plan up to $10,000 per year, capture a New York State tax deduction for the $10,000 contribution, and then turn around and distribute the $10,000 from the account to make the tuition payment for their kids.
New York Does Not Allow K – 12 Distributions
States are not required to adhere to the income tax rules set forth by the federal government. In other words, states may choose to adopt the new tax rules set forth by the federal government or they can choose to ignore them. The new tax laws that went into effect in 2018 will impact states differently. More specifically, tax payers in states that have both income taxes and high property taxes, like New York and California, may be adversely affected due to the new $10,000 cap (unchanged for 2025) on the ability to fully deduct those expenses on their federal tax return.
As of May 2025, New York does not recognize the K -12 distributions from 529 plans as “qualified”. Currently more than 30 states have announced that they will adhere to the new federal tax rules allowing K-12 qualified distributions from 529 accounts. On the opposite side of that coin, the following states do not recognize K-12 distributions as qualified: California, Illinois, Michigan, Minnesota, Nebraska, New Jersey, New York, Orgeon, and Vermont.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
