Ask the Tax Editor, October 30: Reverse Mortgages, 529 Plans and Other Tax Questions

In this week’s Ask the Tax Editor Q&A, Joy Taylor responds to readers’ questions about reverse mortgages, 529 plans, pet insurance offered through work and several other tax topics.

Each week in our Ask the Tax Editor series, Joy Taylor, editor of The Kiplinger Tax Letter, answers questions on topics submitted by readers. This week, she addresses five tax questions from readers. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Reverse mortgages

Question: I’m planning to take out a reverse mortgage on my primary residence. Will the money I receive be subject to federal income tax?

Joy Taylor: No. Payments received from a reverse mortgage are treated as nontaxable loan proceeds. Keep in mind, though, that you cannot deduct the interest you later pay on Schedule A of Form 1040. That is because the reverse mortgage proceeds are not being used to buy, build or substantially improve the home securing the loan.

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2. 529 plans and studying overseas

Question: I have a 529 plan for my son. He is in college in the U.S. now and plans to study abroad in the spring. I’ve been using 529 money to pay for his college costs. Can I also use those funds for schooling abroad?

Joy Taylor: In this situation, yes. A 529 plan can be used for any college that participates in the U.S. federal student aid program.

If a student is enrolled at a U.S. college and spends a semester or two abroad through that school’s program, as your son appears to be doing, the study-abroad program can qualify for 529 spending, as long as the U.S. college is eligible and accepts the credits earned overseas.

If a student instead attends a non-U.S. college for the entire degree program, that foreign institution must participate in the U.S. federal student aid program. Many foreign colleges do participate, and those schools can qualify for 529 purposes.

3. Pet insurance offered by an employer

Question: I have a dog, and my employer offers pet insurance as an employee benefit. Can I pay for it with pretax wages?

Joy Taylor: No. Unlike employer-paid health insurance for workers, which is excluded from an employee’s taxable wages, the value of employer-paid pet insurance is taxable income to you. In practice, most employers that provide pet insurance do not cover the cost, and workers who enroll generally pay their share through post-tax payroll deductions.

4. Charitable donations

Question: My wife and I usually make large cash donations to charity every year and deduct the gifts on Schedule A of our 1040. Can we still deduct cash gifts up to 60% of our adjusted gross income, or did Congress change that rule?

Joy Taylor: The rule was made permanent by last year’s “One Big Beautiful Bill”: charitable cash contributions are deductible on Schedule A in a year only up to 60% of adjusted gross income (AGI). Any excess can be carried forward for five years. The AGI limit for donations of capital gain property, such as stocks, bonds and mutual fund shares, is generally 30%.

Also be aware of a new rule that begins with returns filed in 2027 for the 2026 tax year. Itemizers claiming charitable deductions will see a small reduction in the write-off. The Schedule A charitable deduction is allowed only to the extent that total charitable gifts exceed 0.5% of AGI reported on Form 1040. This is similar to the long-standing Schedule A rule for medical expenses, under which total medical costs are deductible only to the extent they exceed 7.5% of AGI.

5. How long to keep tax records

Question: How long should I keep supporting tax records, such as Forms 1099 and monthly brokerage statements?

Joy Taylor: In general, we recommend keeping tax returns, 1099 forms and other third-party information returns for at least three years from the due date of your return. But don’t automatically discard all old tax returns and records after three years. Review older documents to see whether parts of them may still be useful later. Some records can be thrown out sooner than three years, while the length of time you keep monthly brokerage statements depends on a number of factors.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. Full submission details are included in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many reader questions about tax changes in the One Big Beautiful Bill, retirement accounts and other topics. We will continue answering them in future Ask the Editor roundups, so keep the questions coming.

Not all questions submitted will be published, and some may be condensed and/or combined with similar questions and answers, as required editorially. The answers provided by our editors and experts in this Q&A series are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.