Paying for Christian
School (K-12) with
529 Plans
By Chris Bishop, CFP®
T
HE RECENT PASSAGE of the Tax Cuts & Jobs Act
allows for 529 Savings Plans, which previously could
only be used for qualified college expenses, to now be used
for private school tuition. This is good news for parents
whose state offers an income tax deduction for 529 contri-
butions or who anticipate paying Christian school tuition
over a long time horizon. distributed back to him. This results in $20,000 that can
be deducted from his Virginia taxable income. However,
Virginia limits the deduction to $4,000 per account, so
the couple will deduct $8,000 in the current year and
carry over $12,000 to future years. Overall, this is about
$1,050 in Virginia tax savings, $420 of which is realized
in the first year.
What is a 529 Savings Plan? A Long Time Horizon Case Study
It is a type of savings and investment account where invest-
ment gains can be withdrawn tax-free as long as the monies
are spent on qualified education expenses. A husband and wife just had their first child, and they are
confident the child will be sent to Christian school from
kindergarten through 12th grade. They open a 529 account
for the child and begin making $4,000 in contributions
in a growth-oriented investment. Assuming the account
grows at 5% each year, they will have about $3,200 in
investment gains that can be withdrawn tax-free when the
child enters kindergarten.
How Does the New Tax Law Change 529s?
Effective January 1, 2018, up to $10,000 can be withdrawn
per year from a 529 Plan for the beneficiary’s Christian
school tuition. This $10,000 limit is the total across all 529
accounts for a specific beneficiary. Tuition is the only quali-
fied expense for K-12, so textbooks, room and board, and
supplies cannot be paid for from a 529. This limitation does
not apply once the beneficiary enters college. Since 529 plans
are administered through each state, you should confirm if
your plan allows private school tuition withdrawals before
making any contributions.
A Virginia Case Study
A husband and wife have two children (ages six and eight)
in a Christian school where the annual tuition for each is
$11,000. The father opens two Virginia 529 accounts for
each child in his name and contributes $10,000 to each.
Remember, the maximum that can be withdrawn from a
529 per year for private school tuition is $10,000, which is
why he did not contribute $11,000 per child. He invests the
contribution in a money market fund because he knows it
will be withdrawn within a short timeframe. A few weeks
after the contribution, he has the $10,000 in each account
Other Key Points
The withdrawal from the 529 should be in the same year as
when the expenses were paid. Keep tuition receipts so you
can prove you had qualified expenses for the 529 distribu-
tions in case you receive an inquiry from the IRS. 529
distributions are recorded on your federal tax return, and
you will receive a Form 1099-Q.
The Tax Cuts & Jobs Act gives parents of children attend-
ing a Christian school an excellent tool for paying K-12
tuition, especially if your state provides a tax deduction for
529 contributions.
Chris Bishop is a CERTIFIED FINANCIAL PLANNER TM profes-
sional working for Partners in Financial Planning (partnersin
financialplanning.com), a Fee-Only Comprehensive Financial
Planning Firm serving clients nationwide. Chris serves his
church by leading a personal finance ministry and has worked
with Renewanation in regards to the Virginia Education Im-
provement Scholarship Tax Credit Program.
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