Parents in many states, including Missouri, can now get a state tax deduction for private school tuition, thanks to the federal tax overhaul passed last month.
A lesser-known part of the new law lets families use state-sponsored 529 college savings plans to pay for expenses such as tuition, books and tutoring for kindergarten through high school.
Not only can families withdraw earnings from the plans tax-free, they also can get state tax deductions for putting money into the accounts. Missouri residents can deduct from their state taxes up to $8,000 a year for contributions to 529 plans.
The original idea for such savings plans was to have families invest money over a long period of time for college expenses. Using 529 funds for elementary and secondary education significantly shortens the time families would have to grow their money.
Still, using 529 plans is a no-brainer for private school parents because they can simply deposit the money they were going to spend on tuition anyway and get an automatic tax discount, said Nat Malkus, deputy director of education policy for the American Enterprise Institute.
Missouri had 110,000 private school students in the 2015-2016 school year, according to the National Center for Education Statistics. By Malkus’ estimates, if every private school family took full advantage of the 529 plan, Missouri could miss out on roughly $42 million a year in state income taxes.
Read more: St. Louis Post-Dispatch