Modifications To Qualified State Tuition Programs

The federal "Tax Cuts and Jobs Act of 2017" added distributions for elementary or secondary tuition expenses as qualified distributions from a qualified state tuition program (529 account), thereby allowing, on the federal level, income tax-free distributions for elementary and secondary tuition expenses in addition to already authorized income tax-free distributions for higher education expenses. Similarly, the federal "Setting Every Community Up for Retirement Enhancement Act of 2019" expanded the qualified distributions from a 529 account to include repayment of qualified education loans and payments for registered apprenticeships.

For the purpose of allowing Coloradans to take advantage of these federal tax benefits, the bill creates the foundational learning experience (FLEX) savings program.

The bill also specifies that distributions from FLEX savings program accounts are not counted as federal or state taxable income and that contributions to FLEX savings program accounts for qualified elementary or secondary tuition expenses may not be deducted from state taxable income.

The accounts created under the FLEX savings program are defined by the following characteristics:

• Account owners may only use distributions from the accounts for qualified elementary or secondary tuition expenses; and
• Anyone may contribute to the account irrespective of their relationship to the account's designated beneficiary.

The bill also allows for expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in certain apprenticeship programs to be treated as "qualified higher education expenses" and subtracted from federal taxable income. The bill clarifies that "qualified higher education expenses" does not include repayment of qualified education loans.

(Note: This summary applies to this bill as introduced.)