Attention parents, grandparents, and friends of children attending or planning to attend a private school like Cherokee Christian Schools:
The recent passage of the new tax plan has brought a wonderful change that will make the parents and friends of private school children smile. In short, the popular savings vehicle for college expenses, called a 529 plan, has now been changed to include benefits for children in K-12 grade private schools.
The 529 plan has always been a great way to save for college by growing the savings free from federal taxes and in some states, from state taxes as well. Here are some quick bullet points on 529 plans:
- Investments within the 529 Plan can grow tax free.
- Withdrawals from a 529 plan used to pay eligible expenses are not subject to federal income tax.
- You may spend up to $10,000 per beneficiary (this is the term used for the student) annually on eligible expenses. Tuition, fees, books, and related tech expenses are considered to be eligible expenses. (This limit is for K-12 schools. There is no limit for eligible college expenses.)
- Anyone (parent, relative, friend) can open a 529 for another person.
- There are no income restrictions that apply to the contributor or the beneficiary.
- The funds may be used to pay for eligible expenses at any eligible educational institution.
- You may choose to buy a 529 plan in another state, so compare carefully.
Note: The Georgia 529 Plan seems to be excellent and is recommended by Clark Howard! You can read Clark Howard’s comments on the 529 plans on his website.
For additional details about Georgia’s 529 Plan (called, “The Georgia Path2College 529 Plan”), please visit path2college529.com.
A few more important details:
- The Georgia Path2College 529 plan has no annual contribution limit (see Estate Tax Planning Benefits below).
- The maximum account balance cannot be more than $235,000 for the same beneficiary.
- Georgia taxpayers may deduct contributions from their state income tax return up to $4,000 per beneficiary per year if married and filing jointly, or $2,000 per beneficiary per year if filing single.
- Contributions made by the tax deduction deadline (typically April 15) are eligible for a deduction on the preceding year’s tax return.
- Estate Tax Planning Benefits: There’s another tax advantage unique to the 529 plan. There’s no federal gift tax on contributions up to $15,000 per year for single filers and $30,000 for married filers. There’s even an option to gift amounts up to $75,000 for single filers and up to $150,000 for married filers if prorated over five years. This means you could make a one-time gift equivalent to the five-year amount and it could all qualify for the federal gift tax exclusion.
There are plenty of details to consider when you are thinking about investing in a 529 plan. The information that has been provided above is intended to introduce you to 529 plans, but is not financial advice. Therefore, it is recommended that you consult your tax adviser.
We at Cherokee Christian Schools are thankful for the Lord’s provision, and we hope this is something that helps families in support of Christian education.