Using 529s To Save Money On K-12 Tuition
Welcome to Saving Money with Andrew!
As I’ve written about before, I’m a big fan of 529 College Savings Plans, which provide state tax benefits for contributions in over 30 states, and whose earnings are federal and state tax exempt as long as used for qualified expenses.
Although these accounts are designed to be used to pay children (or other relatives’) educational expenses, you can start them long before you have children and take advantage of the tax benefits for contributing to them. And, if you decide not to have kids, the funds can be used for a relative, your own educational expenses, or withdrawn (with a modest penalty on your gains in some cases).
In 2018, Congress expanded the definition of “qualified expenses” to allow up to $10,000 per year of 529 funds to be used for K-12 tuition, most relevantly for private or religious schools. If your child attends one of these schools, you may find it useful to use existing 529 funds toward tuition. And if you don’t have a 529 but have K-12 tuition expenses, opening a 529 may provide significant savings.
Specifically, if you live in one of the participating states (useful table here) you may be able to open a 529 and (each year) contribute up to the lesser of (i) $10,000 and (ii) the maximum allowable state tax deduction. So, for example, if you live in Connecticut and contribute $10,000 as a married couple, you would obtain a $635 state tax benefit (6.35% of $10,000) and could then use that $10,000 for K-12 tuition.
Before doing this, make sure to confirm that your state’s 529 allows this,[1] and that distributions can be made in the same year as a contribution (in some states, there is a waiting period). But if you live in a participating state in which this is permitted, you can save up to hundreds of dollars per year on your K-12 tuition. Good luck!
And now, Andrew’s pick(s) of the week:
An incredible story: How a Public School in Florida Built America’s Greatest Math Team
Neat little story from Ted Gioia’s great Substack: How My Music Got Featured in 'Better Call Saul'
Interesting: ‘Bees are really highly intelligent’: the insect IQ tests causing a buzz among scientists
I hope this has been helpful. If you liked it, please share it on social media! Also, please send me your feedback, requests, and success stories.
[1] A handful of states, most notably New York, do not allow you to take a New York tax deduction for any contributions used for K-12 tuition.