Tax Proposal Could Impact College Savings Accounts
November 16, 2017

Though policymakers have floated many different ideas for a federal expansion of school choice options—including vouchers, tax credit scholarships, Title I portability, and education savings accounts—none have gained enough support to take off. Recently, Republican lawmakers targeted another possible avenue for expanding educational options through the federal tax overhaul.

College savings plans, often referred to as 529s, are tax-advantaged accounts that encourage families to save for their children’s college expenses. The key advantages to using a 529 savings account are that contributions are tax deductible and withdrawals are free from federal income tax, so long as the money is used for an eligible expense.

Currently, eligible expenses are limited to higher education expenses, such as tuition and room and board. But the recently introduced House version of the tax reform bill would change this provision, allowing 529 college savings plans to be used for K-12 expenses, including private school tuition.

While this change is broadly seen as a positive expansion of school choice, advocates are split over what the impact will be and who will benefit. Supporters say that the new provision will make education more affordable for middle-class families who couldn’t afford private school tuition. They also think it will increase access for families interested in school choice without having to create a new federal program.

Other advocates, while supportive of expanding options for families, are concerned that this specific policy change will not do enough to help low-income families. Research has shown that nearly 92% of 529 account holders have a household income of more than $50,000. There is also a general lack of knowledge about 529 accounts altogether; 72% of Americans don’t know what a college savings plan is.

Additionally, other amendments are still being discussed that could expand school choice through different avenues. Check back for updates, and reach out to connect with other advocates exploring these policies.  

Ryan Cantrell

Ryan is PIE Network's Senior Director, Charters, Choice, and Political Engagement

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