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School savings plans expanded

School savings plans expanded

Private school families could benefit from change

January 22nd, 2018 by Phillip Sitter in News

This Oct. 24, 2016, file photo shows dollar bills. (AP Photo/Mark Lennihan)

The recent federal tax overhaul included an expansion of an education savings program that will allow families with students in private schools to deduct up to thousands of dollars from their state income taxes by using special savings to pay for K-12 school expenses.

According to the U.S. Securities and Exchange Commission, 529 plans are tax-advantaged savings plans "designed to encourage saving for future college costs." These plans are sponsored by states, state agencies and educational institutions.

That definition has changed significantly since the SEC's information was published in early December, though. The federal tax overhaul championed by Republicans and President Donald Trump expanded how savings families contribute to 529 plans can be used to cover not only college costs such as tuition, books, fees, and room and board, but also K-12 expenses — principally, tuition for students at private or parochial schools.

Missouri's 529 program is called MOST, and taxpayers in the state will be allowed to withdraw up to $10,000 annually from a MOST 529 plan for K-12 expenses without facing state tax penalties in the 2018 tax year.

The state allows people filing as single to deduct up to $8,000 from their state taxes, and $16,000 for married people filing jointly for contributions made to a 529 plan, according to information from Travis Ford, financial planner at Wallstreet Group Advisors in Jefferson City.

"The expansion of the MOST 529 program to include K-12 tuition is one of the most important improvements to Missouri education policy in the past decade," state Treasurer Eric Schmitt said Wednesday in a news release. "This change will make educational opportunity accessible to more families than ever before."

The state treasurer's office oversees the program in Missouri.

"This opens up a lot of opportunities for families in this area since we have a large parochial school population. Parents and grandparents contributing to 529 plans now have one more use for these funds," Ford said in an email.

Sister Julie Brandt of the Catholic Diocese of Jefferson City told the News Tribune there were 7,019 students in the diocese's schools last year. Brandt is the diocese's associate superintendent of Catholic schools.

In the current school year, she added, the Catholic elementary and high schools in Jefferson City, Wardsville, St. Martin and Taos have a combined enrollment of 2,636 students.

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Elementary schools in the diocese don't charge tuition for children of active parishioners, she said. Non-Catholic families with children in diocesan schools and all diocesan high school families are charged tuition.

Tuition at Helias High School is $3,000 for students of active Catholic families and $4,900 a year for non-Catholic students.

Diocesan elementary tuition for non-parishioner families is $4,000 at St. Peter Interparish School, $4,800 at St. Joseph Cathedral School and $5,000 at St. Martin Catholic School. Immaculate Conception School and St. Stanislaus School set tuition for non-parish families each year.

"Each of our schools in the diocese is committed to making sure that financial aid is provided for families who do need that," Brandt said.

Calvary Lutheran High School reported Friday it has 126 students enrolled this year. Tuition is $6,500.

Trinity Lutheran School reported it has 287 students this year in grades K-8. Tuition for church members ranges from $1,920-$5,760, depending on if a family has one, two or three children enrolled. Other Lutheran Church Missouri Synod members pay $4,800 per child, and other community members pay $4,925 per child.

Lighthouse Preparatory Academy said it has 135 students. Full-time tuition for the year is $3,650.

River Oak Christian Academy reported last summer it has 85 students and tuition is $4,275.

The regulations on who can invest in a 529 account for any kind of student or student-to-be are flexible. A person must to be a U.S. citizen or resident alien with a verified permanent address and valid Social Security number or other taxpayer ID number to open a MOST 529 account, according to the program's website.

A beneficiary needs only to meet the same requirements and does not have to be related to the owner of the account. There can only be one beneficiary per account, but someone can open separate accounts for different current or future students.

Ford said children need to not be school-aged in order to be named a beneficiary.

Though a U.S. House provision to allow unborn children in utero to be eligible as beneficiaries did not make it into the final version of the federal tax plan approved by the Senate — beneficiaries must have Social Security numbers — Ford added "it's very easy to change beneficiaries."

That means, for example, that a married couple who does not yet have children could open an account in a nephew's name, and then change the beneficiary to their own child later, without any financial penalty.

Schmitt said there are 154,000 active 529 plans in the state, worth a collective value of about $3 billion in assets.

"We're really looking to get the word out as effectively as we can for letting people know that K-12 is now eligible," he said. There have been more than 13,000 new 529 accounts opened in his first year as treasurer, he added.

"We're hopeful that more people will utilize it," he said.

The mechanism of allowing state taxpayers to deduct contributions to savings plans used to pay for tuition to private schools has generated some concern.

The St. Louis Post-Dispatch this month cited estimates from Nat Malkus, deputy director of education policy for the American Enterprise Institute, that "if every private school family took full advantage of the 529 plan, Missouri could miss out on roughly $42 million a year in state income taxes," and furthermore, "that doesn't even account for the possibility that more families will enroll in private school."

"We don't really anticipate any kind of significant impact there," Schmitt said in terms of any reduction in state revenue is expected from the 529 program's expansion. "These are after-tax dollars," he said, adding "people are already utilizing this as a savings tool."

An analysis released Friday by the Show-Me Institute critiqued the $42 million state revenue reduction number. "That amount is dramatically higher than the likely reality, because it depends on several conditions being met," a Show-Me Institute news release stated.

The Show-Me Institute is a think tank "dedicated to promoting free markets and individual liberty," according to its website. The analysis released Friday was by the institute's chief economist, Joseph Haslag and Director of Education Policy Susan Pendergrass.

"It is more likely that the impact would be about $32 million," their analysis stated.

Garrett Poorman, director of communications for the state treasurer's office, said "it's premature to peg any particular number" to any estimates of a loss of state revenue because of the 529 program's expansion, and he echoed Schmitt's statement that no major impact is expected.

"It's too early to really give a numerical estimate for it," Poorman said.

Another source of concern is if private schools even indirectly receive private taxpayer money, they ought to be accountable to the same regulations as public schools, including the state Sunshine Law and accreditation standards, said Brent Ghan, deputy executive director of the Missouri School Boards' Association.

Schmitt said the expansion of what 529 plans can pay for won't affect local property tax collections. Ghan is concerned other parts of the federal tax overhaul threaten local school funding in Missouri, though.

The overhaul capped deductions for property taxes at $10,000.

"We rely on property taxes for local funding, and we're concerned that taxpayers might be less willing to vote for property tax increases" if they can't make deductions like they used to, he said.

"I suppose it's too early to tell the impact of the federal tax law," he added, but "we're concerned that there definitely could be some negative implications there."

People who would like more information about investing in a 529 savings account can speak with their financial advisor or visit at missourimost.org/home.html.

Prospective investors in a 529 account can calculate how much of a state tax deduction they'd receive based on their contribution total and other tax information at vanguard.wealthmsi.com/stdc.php.

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