529 Plans, more commonly known as college savings plans, have been around for a while. There is no federal tax deduction, the money grows tax deferred and, as long as the money eventually is used for qualifying college expenses, you don’t pay any tax when the money is used.

However, the Tax Cuts and Jobs Act of 2017 added a provision that states up to $10,000 per child per calendar year in private and/or parochial K-12 tuition is considered an eligible expense, just as if it was for college costs.

Louisiana has a college savings plan called START. If you put money into a START account, you can deduct, with limitations, the contributions on your Louisiana tax return, but not your federal return. The state will match a portion of your contribution depending upon your income.

Louisiana officials decided they will not allow K-12 tuition to be an eligible expense for the current START plan. Instead, Louisiana legislators created a new plan called START K12 that can be used to save for private and/or parochial school K-12 tuition. Contributions will be invested like a regular START plan, except there is, at this time, no state income tax deduction for contributions and no match.

START Saving Plan funds cannot be rolled over into a START K12 account because the law states this is not allowable. If you choose to open a START K12 account, any fund remaining — after your child graduates from high school — can be rolled over into a START Saving Plan Account to cover qualified higher education expenses for postsecondary education.

When Might Such an Account Make Sense?

With a relatively high percentage of Louisiana’s students attending private K-12 schools, many people may look at this as a way to save for private and/or parochial tuition. If you make annual or monthly tuition payments, the new START K12 plan won’t help you; however, up to $5,000 a year of such expenses can be deducted on your Louisiana tax return.

But consider the happy grandparent welcoming the birth of their grandchild, for whose education they want to help pay. They open a START K12 account for their grandchild and fund it with $20,000. That money will grow – tax-deferred – and be available when it is time to start paying tuition.

While this type of tax planning isn’t for everyone, it certainly is a tool that can provide a great result in the right situation. If saving for K-12 education – or college expenses – is something you want to discuss further, please contact your Ericksen Krentel tax professional or email us. We will continue to share information regarding changes, clarifications and new guidance as it becomes available.

About Ericksen Krentel

Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.

That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.

Learn more at www.ericksenkrentel.com.

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