The Case Against K-12 529 Spending

Sep 3, 2019, 3:29 PM

(From Forbes) Thanks to the 2017 Tax Cuts and Jobs Act, some parents are changing the way they plan to use their 529 plans. For families enrolled in independent K-12 schools, that means they are now able to pay up to $10,000 per student per year for tuition. Yet in some states, a distribution for K-12 will be considered a non-qualified distribution, and other states may exclude it from being eligible for state income tax breaks — meaning the tax benefits may not outweigh the investment. Most importantly, families that withdraw from a 529 plan for K-12 will stunt the long-term benefits of 529s, even if those withdrawals are small, said Tyler Linsten of Alder Cove Capital. That’s especially true if they’re taken during a market downturn before the student reaches college or if college tuition rates continue to rise at a rate higher than inflation, he added.

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