I gave a report at the last Pleasant Valley School District meeting on Thursday about how the new tax law changed 529 plans and could affect Pennsylvania School Districts. How this will play out is not yet known but it is something to watch.
When Congress passed the most recent tax package, it expanded the definition of qualified expenses for 529 plans. Previously, 529 plans could be used to save money only for college expenses. For a parent like me, who is about to send his second child to college, I considered this a great benefit. I could shield some income to pay for college expenses and the investments could accrue tax-free. (My daughter’s annual tuition at GW is almost as much as I paid for my first house!).
However, you can now use a 529 plan for K-12 expenses as well. If you are sending your child to a private school, religious or nonreligious, it doesn’t matter, any kind of private school, you can use 529 money to pay for that expense. It is capped, It is a $10,000 annual limit per beneficiary. Each child can pull $10,000 out of a 529 to pay for K-12. But considering it was zero before that, it is a big change.
So, how might this affect the Pleasant Valley School District or other Monroe County schools?
The law gives parents who are considering private school, rather than public school, a financial break to educate their children in a private school. The Pennsylvania School Board Association (PSBA) does not believe this will prompt a significant exodus from public to private schools but it is certainly something to watch. To the extent it encourages more investment in 529 plans for pre-college education, it will reduce the amount of taxes Pennsylvania expected to collect.
We all know that school funding is a big issue in Pennsylvania so this new law adds a wrinkle in the amount of state revenue that could be earmarked for school districts.
Stay tuned to see how this all plays out.