There’s more good news for families who choose Catholic education for their children in grades K-12… The new tax bill that passed the United States House of Representatives (December 2017) and is expected to pass in the Senate very soon, includes a financial benefit for parents who choose private school for their school-age children.
College Savings Plans, otherwise known as 529 Plans, have been around for a long time. Parents are able to save money in the account, and the investment can grow tax-free. For example, let’s say a family invests $100,000 in a 529 Plan, and let’s say the plan earns 6% interest in the first year. That $6,000 of interest will NOT be taxed as income, so long as the family uses the money toward college expenses like tuition, room, board and books. If your federal tax is 33% that makes for a $2000 tax savings.
Granted, not everybody has $100,000 to sock away for college, but all families are able to contribute ANY amount. Therefore, even a monthly investment of $50 can add up, and it grows income tax-free. The 529 Plan in California is Scholarshare.
The new tax bill proposes to allow this same savings strategy to be used for students in private school, grades K-12. We’ll all hear the full details in the coming weeks. But it’s something to be excited about as we all look to grow the number of families benefiting from Catholic Education.
A real-life scenario is this… A family has a 3-year-old daughter and is fairly confident they want to have her in private Catholic high school, a mere 11 years later! The family opens a 529 account with $100, and starts saving $100 per month. That’s $1200 per year, and $13,300 after 11 years… PLUS about $6600 of interest, for a total of $18,920. The tax bill suggests that a family can withdraw up to $10,000 per year.
So the family’s investment earned $6620 interest… tax-free! For different scenarios, use Nerdwallet and plug in your own numbers.
We’re still waiting for the government to allow families to fully deduct their Catholic school tuition payments from their annual income. But we won’t hold our breath. Baby steps!