When Congress rewrote the tax code in December, it included changes to a familiar education program for taxpayers — states’ 529 plans.
The plans, or investment accounts, were created in the 1990s for families to save for college and can be used for tuition, fees, books, room and board and other college costs. In most states, there is an incentive to save.
Oklahoma’s 529 plan allows a state income-tax deduction of up to $10,000 per year for individuals and $20,000 for couples filing jointly. Families can withdraw the money, including interest earnings, to spend on eligible costs without paying taxes. Other states, like Indiana, give a tax credit.
The federal tax-code legislation says families can now use the investment funds for expenses at private K-12 schools, too.
Conceivably, instead of investing long term for future college costs, wealthy parents could front-load their accounts and withdraw money each year to pay for private elementary and secondary school education. If there’s a surge of interest in the plans, it could produce a dip in states’ revenue collections.
Tim Allen, deputy treasurer for communications and program administration at the state Treasurer’s Office, said the state doesn’t yet know what fiscal impact the changes will have on the state budget.
While some states have reported fielding lots of questions from parents about using their 529 plans for private school tuition, Allen said he’s only received one phone call so far.