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529 plan may make Catholic school education more affordable

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Some eager parents begin adding money to a college fund soon after their child’s birth. The earlier they create an account and more money they add, the more financially prepared they’ll be for the day their child heads off to college.

But parents hoping to send their children to Catholic school have a reason to start a savings account, too. Thanks to a provision in the Tax Cuts and Jobs Act of 2017, a type of college saving fund known as a 529 plan now can be used to pay for K-12 tuition at private and religious schools.

“For some who might be on the cusp, where they think they can’t afford (to send their children to private school), this might be just enough to change the equation for them,” said Matthew Zimmermann, diocesan school financial liaison.  

“(This change) is just so new. Our goal is to educate families,” said Jennifer Daniels, associate director of public policy at the U.S. Conference of Catholic Bishops. “When I go around and talk, I say make sure when you go to a baptism, that that child has a 529.”

A 529 plan has tax advantages. Gains from the plan can be withdrawn tax-free if used for qualified educational expenses. Part of the principal contributed to the plan is deductible for state income taxes, according to the National Catholic Educational Association. In Virginia, $10,000 can be put into the fund annually and $4,000 of that is deductible in a year. 

Parents who already have a 529 plan can start using that money immediately for private school tuition. But they might want to wait as long as possible. “The big tax advantages are in accumulating interest,” said Zimmermann. ”So if you’re taking it out right after you put it in, you’re not getting that advantage.” 

In Virginia, funds are transferable between family members. Additionally, grandparents, godparents and other loved ones are able to open a 529 plan on behalf of a student. There can be multiple accounts per child or just one account, according to the USCCB. 

“For family members who want to try to help, it’s an opportunity for them to get a tax break and take the pressure off the parents,” said Zimmermann. “But this is an investment decision and I’d advise people to consult with their tax adviser.”

Though 529 plans are helpful, the program might not make a Catholic school education more accessible for low-income families. “From a public policy perspective, we’ve stressed that this does not go as far as we need,” said Daniels. “We want to encourage this, but if you (have) no money to set aside, then you have no money to grow in a savings account.” 

For individuals or businesses looking for a tax break and a way to give the gift of Catholic education, the Diocese of Arlington has a scholarship foundation. Money given to the foundation will go toward low-income Catholic school students. Donors receive a tax credit, which allows them to subtract 65 percent of the amount of their donation from the amount of money they owe in state taxes. 

“I think both (the 529 plan and tax credits) are useful, depending on the person's circumstances,” said Zimmermann. “It’s all part of the options that allow people to make better choices for children.”

Find out more

To learn more about 529 plans, talk to a financial adviser or go to virginia529.com


© Arlington Catholic Herald 2018