Why NC families should hold off on paying K-12 private school costs with 529 plans
Private school parents around the country have been trying to learn more about how the recent federal tax overhaul allows families to withdraw up to
Additionally,
"We're worried that people could risk a tax penalty that they might not have to risk," said
The plans, named for a section in federal tax code, were originally created to help families save for college by investing their money and letting it grow tax free. People don't pay federal or state taxes on the money they withdraw for higher education expenses such as college tuition.
States run their own 529 plans.
New questions began to emerge in December when the Republican-led Congress expanded 529 plans to cover K-12 costs, including tuition, at private schools. Supporters of the change say it's a victory for school choice, although efforts to expand 529 plans to cover homeschoolers were rejected.
"Expanding 529s to include any educational option is a common-sense reform that reflects the reality that we must begin to view education as an investment in individual students, not systems,"
But the new benefit has also drawn complaints from critics who say it's a tax break for wealthy families. Critics also warn that the tax break will result in less federal and state money available for public education.
"The way the tax code is being used to subsidize private K-12 education both undermines our national system of public education and our state systems," said
Locally, current and prospective parents have been asking about their options, said
"We think that families will use this opportunity to come to Thales since we provide a high-quality education at very affordable cost," Hall said.
North Carolinians who withdraw money from 529 plans for K-12 costs won't be taxed by the federal government. But
Johnson said the department is waiting to see what changes the
In the meantime, Morgan said parents who have contacted the
At this point, the federal tax change is more of a symbolic step for private school families, according to
"We see this as a small change in the right direction," Allison said. "It will let taxpaying parents save a small amount to defray their expense for K-12 education."
Things could change if the state restored the tax deduction for 529 contributions. If the deduction is restored, Morgan said families will have to weigh the short-term benefits of using 529 plans for K-12 costs versus the long-term strategy of saving money for college.
"This particular investment was set up with long-range investment horizons in mind so it continues to be a valuable resource for college and for time horizons that are further out regardless of whether the K-12 provision is allowable under
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