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For years, one of the financial tools available to families looking for a smart way to build a war chest for their children's future higher education expenses (which currently averages over $20,000 a year for tuition, room and board and other fees at a public four-year university) is the 529 plan , an investment vehicle offered by state governments allowing investors to put their money in the stock market and withdraw their earnings without having to pay any federal taxes. Now, thanks to the The Tax Cuts and Jobs Act which recently went into effect, 529s can be used for tuition at private K-12 education, a boon for parents convinced their child needs every educational advantage possible and is willing to pay for it starting as early as kindergarten.
Under the current tax law, 529 plan holders can use up to $10,000 a year from the account to help cover the tuition costs of private K-12 education. This differs from the rules governing how 529 funds are used for higher education, which permits each parent (and grandparent) to save up to $15,000 in the plan without that money being taxed by Uncle Sam. While the savings from the 529 plans can be used to pay for tuition, as well as course fees, books, supplies and equipment at institutions of higher learning, only tuition counts as a qualified expense for 529 funds used at the K-12 level.
These days the average cost of tuition for a private elementary school is $9,938 a year. Sending your child to a private high school can set you back an average of $14,205 a year, making the use of 529 funds a seemingly obvious choice if you have them at your disposal. One thing to keep in mind, though, is that any funds spent on K-12 tuition is money that obviously can't be used for college expenses. Also, while 529 funds may be free from federal taxes, not every state is so generous—make sure you check the rules for your state of residency before counting on paying for a private K-12 education on the (relative) cheap.
This Article, " New Tax Law Lets Families Tap Into 529 Plans for Private K-12 Education " Was originally published on ValuePenguin