- Thanks to the new tax code, people can now use 529 plans to save for K-12 private school expenses.
- Yet few parents plan to do so.
- Confusion over state rules, among other issues, could be the reason.
The Tax Cuts and Jobs Act made a big change to 529 plans, the tax-advantaged investment funds that can be used for education costs.
People can now use them to save not just for college, but for K-12 private school expenses, as well. It was considered a windfall for affluent families.
But fewer than 1 in 5 parents who have 529 plans are actually considering using them for their child's private education prior to college, according to a survey of 1,200 mothers and fathers by Savingforcollege.com.
"I was a little surprised," said Mark Kantrowitz, publisher of Savingforcollege.com and a student loan expert. "I would have thought more parents would consider doing that."
He cited a few reasons why parents might take pause.
They may be concerned their funds in a 529 plan could reduce their child's chances of being awarded a scholarship for their precollege education, he said.
"If you have resources available to pay for private K-12, then maybe that's going to be considered when you apply for financial aid," Kantrowitz said.
"It's a well-founded concern," he added. "Some schools have said that they're going to start considering 529 plans when asking parents about their assets."
Some parents might not believe it's worth it, he added.
For example, when parents save for their child's college expenses in a 529 plan, they could, in theory, have an almost two-decade-long investment timeline. "Whereas when you're saving for K-12, and you start having to use your plan when your child enters first grade, that money has only been invested for five years," he said.
And there's still uncertainty around how states will treat 529 plans used for K-12 savings, Kantrowitz said.
"The tax implications on a state level haven't been fully settled," he said. "Until that gets resolved by states passing amendments saying it's a qualified expense, the families are going to be hesitant."
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