Consider This Change To Education Savings Accounts

Parents, are you paying attention?

I’m a young married person who does not yet have any kids. Yet, long before my wife and I start having kids, the subject of education is on my mind. Given that Congress passed a change to the way education savings accounts work, I’ve got a vested interest in understanding what’s going on.

Many states have education savings accounts, known commonly as a 529 account. The idea is similar to an IRA or 401k; parents can put money into this account tax-free, and can use the growth from the account to fund their kids’ college tuition payments when the time comes.

Up until now, 529 accounts could only be used for college tuition. However, the recently passed tax bill changes the rules regarding how 529s can be used. Thanks to an amendment from Senator Ted Cruz, parents can now use a 529 to pay for primary and secondary schooling as well.

The change in 529 rules is essentially a private school tax break. As Mandy McLaren discusses for the Louisville Courier-Journal, a 529 account can now be used for up to $10,000 in K-12 school expenses.

The change represents the first step in expanding school choice under Trump, with advocates including Education Secretary Betsy DeVos lauding the move for giving parents more options.

But like other criticisms of the Republican tax plan — which, according to one analysis, will deliver the largest share of benefits to the wealthiest 5 percent of Americans — even school choice proponents agree that the 529 plan expansion will most likely benefit those who can already afford to send their kids to private school.

That’s certainly a point of concern; more students should be able to access better institutions for their education. Parents and their kids should not be locked into failing schools without a feasible way to get a better education. States like Arizona have pioneered wildly successful school choice programs and other states would be wise to follow suit.

In the meantime, those who do have access to alternative schools should also have the financial means to do so. Expanding the 529 account to include K-12 education offers parents a way to keep more of their own money, and to use that money for education choices that best suit their situations.

This seems like a great idea to me at first glance. The idea that my wife and I can set aside portions of our earnings before the government takes a percentage is something that I’m rather inclined to support. But what about the downsides, if any?

The way the plan works could actually be hurting the states. The Republican Party claims to support states’ rights, but according to Nat Malkus, writing in the New York Times, the change actually subverts the will of state legislatures.

State legislatures have set certain standards for their tax law, but allowing parents to put the entire amount of 529 contribution limits into these accounts could take billions from the tax stream that these states have become accustomed to having. Some states, like West Virginia, don’t have any 529 limits, so parents could pay their entire private school tuition with tax free dollars.

Could that be problematic for the state governments? Possibly. But here’s something that comes to mind when I think of this debate: if I decide to send my kids to a private school, my family will be paying double for education, because money is being taken from us for the public schools even though our kids are not enrolled there.

By expanding the 529 account to include primary and secondary education, I think this will be a good thing for kids and parents across the country. States still need to work on expanding their school choice programs (my own state of Virginia being one of them), but the change gives parents some more money in their own pocket to take control of their child’s education.