Friday, November 3, 2017

The 529 Plan

A 529 plan is a special type of savings plan that lets you set money aside for your child's college education while providing some tax advantages.

The plans come in two main types-- pre-paid tuition and college credits. The plans can come with a variety of fees and costs, as well as the risks that come with enrolling your child in a university eighteen years before she graduates from high school. But the money earned in a 529 account is free of state and federal taxes in most cases, as long as you spend it on college stuff.

529 plans are going to enjoy some news coverage because they are a part of the GOP tax proposal. Some of the changes are practical, some are intended to make a point, and some are probably part of a longer game being played here.

The basic proposal is this-- let parents use 529 plans to save for private school tuition for K-12.

The extra ideological wrinkle is this-- let parents start putting money in the account at conception, a slickly subtle way to drive home the point that the fetus is a person (after all, the fetus has a bank account) which can just be added to the steady drip, drip, drip of the anti-abortion crowd. It's rhetorically twisty because it brings the issues of choice and choice face to face. Folks are going to have to be clear about discussing school choice or abortion choice, because folks mostly don't oppose or support both, leaving us to discuss Choice (pick one).

Public education advocates are unhappy with the idea because they see it as promoting private school over public school. But as proposed, it's not going to make private school any more accessible than it ever was. If you can afford to send your kid to private school, this will give you a nice tax break, and if you couldn't afford to send your kid to private school before, well, you still can't.

But that's where the long game comes in.

One of the preferred pitches for school vouchers these days is the Education Savings Account. With ESAs. instead of handing parents an actual voucher, the state would place the money in a special education lockbox. From there, many things can happen depending on the state, but Texas, Pennsylvania, and New Hampshire have all toyed with this approach.

What the new K-12 529 plans would do is create everything needed for an ESA/voucher approach except the funding stream from the state. And you can already see choice fans warming up their, "These accounts do not help the non-wealthy families of our state. To make this fair, the state should deposit some money in those 529s, or even allow corporations a deduction if they put money in the 529s of needy-yet-worthy students."

So the GOP proposal, in the short run, doesn't change much. In the long run, it sets the stage for another run at voucher/ESA systems in the states. Keep your eyes peeled.

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