By Allison Ball, Commonwealth of Kentucky Treasurer
Congress is looking to make a change in federal tax law that will have a significant impact on Kentucky families. Since their inception, Kentucky students have benefited from traditional 529 savings accounts. These tax-advantaged accounts have been a tool for parents, grandparents, and other loved ones to set aside money for their children’s future college expenses by allowing benefits from after-tax contributions to accumulate and grow untaxed, as well as allowing for qualified untaxed withdrawals.
Congress is now deciding whether to expand traditional 529 savings accounts to allow families of K-12 children to use them to pay for public, private, and home school educational expenses. Expanding 529 savings accounts would be a victory for Kentucky families. Should this expansion provision make its way into the final version of Congress’ tax reform bill, it would dramatically increase the ability of Kentucky families to choose the educational opportunities they think are best for their children.
This expansion could open the door for low-income and middle-class families to pay for private school tuition, to purchase curriculum or online programs for homeschooling, or allow parents of public school children to use funds for tutoring or school supplies. Under this proposal, tax free withdrawals would be capped at $10,000 per year.
Before the people of Kentucky elected me State Treasurer, I practiced bankruptcy law in Eastern Kentucky. I know from that experience that saving money makes a difference in the lives of low income and middle class families. Savings accounts can lead to more personal independence. Education specific savings accounts, such as 529s, allow families to prepare for one of the most significant financial expenses that families incur, that of educating their children.
As a member of the board of directors of both the Kentucky Higher Education Assistance Authority (KHEAA) and the Kentucky Higher Education Student Loan Corporation (KHESLC), I have seen firsthand the impact traditional 529 savings accounts have in the lives of Kentucky families because they lessen the burden of student loans. The expansion of traditional 529 savings accounts to include K-12 education would similarly lower the financial burden of educating children, as well as give parents greater choice and control over the education of their children.
With the enactment of the federal ABLE Act and the launch of STABLE Kentucky, children with disabilities in Kentucky already have an expanded opportunity to pay for K-12 expenses. STABLE Kentucky is a Kentucky State Treasury initiative that allows Kentuckians who have been diagnosed with disabilities by the age of 26 to open 529a tax-free savings and investment accounts to pay for qualified expenses, including education.
Congress should expand traditional 529 accounts to allow all Kentucky families, not just those who have children with disabilities or children in college, to stretch their dollars by utilizing tax-advantaged 529 savings accounts to pay for these costly educational expenses.