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New Tax Law Expands College Savings Plans to K-12

March 8, 2018

The recently enacted Republican tax reform includes a provision allowing parents to use federal-tax-free educational savings accounts for K-12 expenses.

The law expands the benefits of 529 savings plans, which are “educational savings [plans] operated by a state, state agency or educational institution, named after the IRS code section that created them,” The Tennessean reported in January 2018. “Before the new tax plan, 529 plans were exclusively used for college related expenses, but the new tax plan includes a provision that allows 529 plans to be used for K-12 education expenses. This includes private school tuition as well as public and religious elementary and secondary school expenses. It does not allow 529 plans to be used for homeschooling expenses. Beginning this year, 529 plans can pay up to $10,000 a year for K-12 expenses.”

President Trump signed the tax reform bill just before Christmas 2017.

Cruz Offered Successful Amendment

Prior to passage of the final tax reform bill, the U.S. Senate passed the Tax Cuts and Jobs Act, which included a Student Opportunity Amendment by Sen. Ted Cruz (R–TX) expanding the use of 529 dollars to include homeschool, private, and parochial students.

A letter sent to Cruz’s office in December 2017 with the signatures of 70 organizations had advocated the expansion of 529 education savings accounts. A project of the Invest in Education Foundation and the #EdTaxCredit50 Coalition, the letter urged the House and Senate to include the expansion language in the tax reform bill.

“If included in the final law, this will mark the first legislative expansion of nationwide private school choice in 20 years,” the letter stated.

Before Congress voted on the final version, a vote on Cruz’s amendment reached a 50-50 tie in the Senate. Vice-President Mike Pence cast a midnight vote to pass the amendment.

Dems Exclude Homeschool Families

Although 529 Plans are now available to students in elementary and secondary schools, the homeschool population was rejected when Senate Democrats used a procedural technicality to strike a few lines from the tax bill that deemed certain homeschooling expenses as permissible withdrawals from 529 accounts.

Thomas Carroll, president of the Invest in Education Foundation, says homeschooling parents should be allowed to participate just like anybody else.

“If parents are able to invest their own money in a 529 account, they should be able to take it out for legitimate homeschooling expenses,” Carroll said. “They are not asking for a gift from anybody; they are investing their own money.”

Carroll says homeschooling families provide a significant benefit to the public schools through their property taxes.

“Without incurring public expenses, they are paying federal, state, and local taxes to support schools that their children are not attending,” Carroll said. “They are doing a tremendous public service. The least we can do is make it easier to save their own money.”

‘Well-Deserved’ Change

“While some states are quite upset about this change and the possible loss in tax revenue they are about to experience, when you look at the big picture, this tax change is well-deserved,” Jeffrey Dorfman, a professor of economics at the University of Georgia, wrote in a January op-ed for Forbes.

Dorfman says worries about the potential fiscal effects of 529 accounts are unfounded.

“People are worried about rich people who are going to open an account and plunk $200,000 in on the day their baby is born,” Dorfman told School Reform News. “However, that is a small number of people. For the average person, 529 accounts have a big effect, because in states that allow you to deduct up to a certain amount of 529 contribution from your taxes, you can put money in and then take it right back out to pay private school tuition. Meanwhile, families are able to save a little money on their state taxes.”

Carroll says the credits are clearly targeted toward the middle class, not the rich.

“Some critics say that these accounts are a millionaire’s plaything,” Carroll said. “But the truth is, the participation of families whose household income totals $1 million is half of one percentage point. It is very low because they have other tax vehicles to save money. The targeted audience is the middle class.”

Cassidy Syftestad (cassidysyftestad@gmail.comwrites from Hillsdale, Michigan.

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Cassidy Syftestad ( writes from Hillsdale, Michigan.

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