If you send your children to private school, you can now use money saved in a 529 plan to pay their kindergarten through 12th grade tuition.
This new opportunity that came with the tax overhaul of late 2017 only applies to private schools. But yes, starting with the 2018 tax year, you can withdraw $10,000 per student per year to pay for primary or secondary education. Now, you shouldn’t withdraw from a 529 plan if that means you won’t have enough money for college. BUT, if you are financially secure enough to add EXTRA money to a 529, or even set up a new one JUST for K-12 expenses, then there is an opportunity to save a boatload of money in taxes.
To be clear, I’m not talking about the 32 states that offer tax deductions or credits for investing in a 529. That money only adds up to a couple hundred dollars a year at most. No, the real benefit of a 529 has to do with FEDERAL taxes. It’s like a Roth IRA for education in that the money in a 529 grows free of federal income tax.
Now that you can sock away money in a 529 for BOTH K-12 education AND college education, there’s a savings strategy called front-loading that you should know about. This one is for people with big cash reserves. If you have the money, it could be very lucrative to invest a couple hundred thousand dollars in a 529 plan now, so that it has as much time as possible to grow. Then you can withdraw $10,000 per child per year —free of federal income tax— to pay for private school tuition.
An online calculator shows that front loading like this could save a family more than $2,000 a year in federal taxes. Multiply that times the 13 years a child is in school for K-12 and that’s $30-thousand dollars in savings! You know me, I get excited any time there’s a chance for five-figure savings. And you would still have money left over after the 13 years to put toward your son or daughter’s college and maybe even grad school tuition.
Of course, you should consult a trusted financial advisor about your individual situation. You can also run your own numbers through a tuition calculator and I have linked you to a good one below.
529 Tuition Savings Calculator: www.savingforcollege.com/calculators/529-private-school-tuition-savings-calculator