2023 Legislation Expands Qualified Education Expenses for New Mexico Taxpayers
Beginning June 16, your tax-advantaged 529 savings plan will cover more education-related expenses, thanks to new legislation passed during New Mexico’s 2023 legislative session.
If you’re a New Mexico resident who is contributing to a 529 education savings account with The Education Plan, you now can receive a tax deduction for contributions used for a wider range of federally qualified education expenses, including:
- Up to $10,000 a year to cover expenses for tuition in private K-12 schools
- Up to $10,000 in student loan repayments
- Apprenticeship-related expenses (for programs registered under The U.S. Department of Labor)
- Rollovers to Roth IRA retirement accounts and ABLE Accounts, savings accounts for New Mexicans living with disabilities
Recently enacted legislation expands the benefits of 529 plans for New Mexicans without restricting or eliminating any of your savings plan’s existing benefits, including the power to cover tuition and fees, books, supplies, room and board, computers, and special needs educational services at universities, community colleges, trade schools, or vocational schools. (For more on 529 basics, visit The Education Plan’s website.)
Opportunities for New Mexico Families
The unanimous vote in the New Mexico legislature to expand 529 benefits was backed by Rep. T. Ryan Lane, Minority Floor Leader, and Senator Peter Wirth, Majority Floor Leader, and was signed into law in March 2023 by Gov. Lujan Grisham.
The new law will be welcome news for New Mexico families looking for more options for their education savings. “Not only can our families continue to use their 529 education savings accounts for future education planning, but now we have unleashed the opportunity for so many families to utilize this fund for both private K-12 education and for apprenticeships post-high school,” Rep. Lane said. ”Aligning our state law governing 529 plans with updated federal law, we have secured a path forward for so many working families to use the power of their savings accounts to create educational opportunities for their children and grandchildren.”
A FLEXIBLE SAVINGS OPTION NOW EVEN MORE FLEXIBLE.
Traditionally, 529 plans were reserved for post-secondary education expenses. But the new benefit expansion will provide much-needed relief for parents with younger children, children with disabilities, families with student loans, and students who choose to participate in apprenticeship programs.
- K-12 Education Opportunities. The new bill aligns with recent federal legislation allowing families to use up to $10,000 annually per beneficiary in 529 account funds to pay for private elementary or secondary school tuition, including some religious schools.
- Student Loans. Another exciting benefit–owners of 529 accounts can now use tax-advantaged 529 plan distributions to pay the principal or interest on qualified loans for the account’s designated beneficiary. In addition, the legislation allows 529 funds to pay student loans for the siblings of beneficiaries without changing the account's beneficiary.
- Retirement Accounts. In most cases, if you pull funds from a 529 account for expenses unrelated to education, you face taxes and penalties. However, if you’re the beneficiary of a long-standing 529 account (one set up at least 15 years ago), you can boost retirement savings by transferring up to $35,000 to a ROTH IRA retirement savings account without incurring penalties. See more details on restrictions/limits at TheEducationPlan.com.
Apprenticeship Programs Now Qualify
Trade schools, vocational schools, and apprenticeship programs offer great opportunities to learn well-paid skills and trades that are in demand. Now, 529 funds can be used to pay for the fees, books, supplies, and equipment required for vocational training and apprenticeships which provides students with more options to participate in programs that will build the next generation of our labor force. There are over 27,000 registered apprenticeship programs nationwide, according to the U.S. Department of Labor. Apprenticeships offer training in a wide range of industries from healthcare to engineering and manufacturing. To learn more about qualified apprenticeship programs, visit the DOL’s “Apprenticeship USA” website.
Start Small but Start Today!
This new bill makes a 529 account with The Education Plan even more beneficial for New Mexico taxpayers. Be on the lookout for more about these new 529 plan benefits in the coming months.
For now, if you haven’t opened a 529 account yet, remember that you can open an account with no minimum initial contribution required. Visit our website to open an account or to learn more about saving for education through a 529 plan today.
Frequently Asked Questions
A 529 plan is a tax-advantaged investment account that is designed to grow savings for future education expenses for a specified beneficiary. 529 plans offer unique benefits and features that make them an appealing strategy for education related saving.
A 529 plan can be used for “qualified educational expenses.” For federal tax purposes, qualified educational expenses include:
- Tuition and fees at accredited higher education institutions
- Books
- Supplies and equipment
- Room and board for beneficiaries attending on at least a half-time basis.
- Computer technology, equipment, and internet access
- Up to $10,000 a year for K-12 tuition and expenses (Limit increase to $20,000 in 2026)
- Expenses for educational special needs services
- Transfers to an ABLE account for the beneficiary (transfer subject to annual limit)
- Apprenticeship expenses
- Up to $10,000 for student loan repayment
- Credentialing expenses and certification programs
- Roth IRA rollover for the beneficiary
If you're not sure if an expense is considered "qualified," we recommend consulting with a tax professional or advisor. Unqualified expenses will be treated like ordinary income: state and federal taxes will apply, with a 10% federal penalty for withdrawals from your 529 plan used to pay for them.
New Mexico residents can deduct contributions to The Education Plan from their state taxable income each year. This includes contributions made to an account that you are not the account owner of.
You cannot deduct contributions from federal income taxes.
Any person at least 18 years old with a valid Social Security Number (SSN) or Tax Identification Number (TIN) can open a 529 account. The account holder chooses the investment options, designates a beneficiary, and requests the distribution of funds.
The cost of college continues to rise, including tuition, housing, food and supplies, so it’s important to begin saving as soon as possible. You can learn more about how much a typical college education costs on our Cost of College page. It’s never too early or too late to start.
The Education Plan offers a variety of investment options to fit you and your family’s needs, risk tolerance and goals. You can see all of the available investment portfolios on the investments page.
Yes, you can use up to $20,000* a year to cover tuition and expenses for K-12 education.
Qualified K-12 expenses include:
- Tuition (public, private, and religious)
- Curriculum materials, books (including digital/online) and instructional materials
- Tutoring and instructional classes**
- Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to college or university admission
- Dual enrollment program fees
Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies
*Starting in tax year 2026. The annual limit is $10,000 in tax year 2025 and permitted for tuition only.
**Tuition for tutoring or educational classes outside of the home, including at a tutoring facility, but only if the tutor or instructor is not related to the student and—
(i) is licensed as a teacher in any State,
(ii) has taught at an eligible educational institution,
or (iii) is a subject matter expert in the relevant subject.
You can open an account with The Education Plan online or by mailing in the enrollment form. In order to open an account, you will need the following information:
- Your social security number or TIN
- Your address
- Your bank account information (in order to fund the account)
- The beneficiary’s social security number or TIN
- The beneficiary’s birthday
-The beneficiary’s address
