Tax reform: Parents can claim tax deductions for school tuition
Parents can claim a state tax deduction for private school tuition. Some people approve of the change, stemming from the federal tax reform passed in December, while others fear a negative impact on the entire education system.
The goal of Missouri's MOST 529 college savings plan is for people to start saving up for their kid's college expenses early on with tax advantages supported by the state. "Anyone has the ability to start up a 5-29 plan for college savings at a minimum," said Mark Sharp, a certified public accountant with BKD.
Right now, when people head to the MOST website, they find a warning of the new changes outlined. "Recent changes to federal law are expanding the 529 savings program, allowing Missouri families to better utilize this important program," reads the website's pop-up. Later down in the window, it states Missouri taxpayers can use MOST 529 assets to pay for kindergarten through high school tuition at private schools without state consequences for up to $10,000 per year, per student. "State tax treatment of K-12 withdrawals is determined by the state(s) where the taxpayer files state income tax," it continues. Before the federal tax reform, money in 529 accounts were to be solely used for college expenses.
The Summit Preparatory School in Springfield called this a "no-brainer" for their student's parents. Mark Sharp is also Summit's treasurer with the board of trustees. Sharp tried to paint a picture of what tax deductions would look like for the average tuition payer in Missouri where the state tax rate is six-percent. "Let's say you pay $7,000 in tuition, full tuition, you would save at six-percent of that, $420 on your tax bill."
We also asked him about the opposition. Since this is money the state will lose out on, many fear it would be taken from public education. Sharp said that is not the case. "It will reduce the overall taxes paid into the state in Missouri," admitted Sharp. "That doesn't necessarily mean it's hitting the public funding dollar for dollar, it's just reducing the total tax dollars received by the state of Missouri, which could reduce the amount of money available for medicaid, healthcare spending, infrastructure spending, it could partially impacting the schools as well."
Sharp said there are other changes in the wording of the tax reform that will impact other areas of the MOST 529 plans. He said people will be able to roll-over accounts from one child to the next without having to withdraw the money and therefore having it taxed on.
Currently, there are about 150,000 MOST 529 plans in Missouri. Although Sharp said having a plan would benefit many families, whether they go to a public or private school, he doesn't believe these changes will make people log on and open an account immediately. "Do I see huge amount of people doing this?," he asked. "Probably not."
Administrators at Summit Preparatory School also said they don't see this making their numbers skyrocket. "I don't know that just the changes in the 529 will have a huge impact in our enrollment and our growth," said Amy Maas.
The MOST website stated it would continue to keep Missouri parents "updated on the implementation of these changes." It also encourages everyone to consult a qualified tax advisor about each person's financial situation.