Tax Reform: How Expanding 529 Accounts Can Harm Public Education

UPDATE 12/4/17: On December 2nd, the Senate passed its own tax reform bill. It differs in some ways from the House bill, but it includes the same expansion of 529 savings plans. Next, a “conference committee” will meet to reconcile the two bills and put together a final piece of legislation to send to the President.


In November, the House released and passed its bill – the Tax Cuts and Jobs Act (H.R. 1) – to reform the country’s tax system. One of the major changes this bill includes is an expansion of the “529 savings plans.”

Currently, 529 savings plans allow parents (or other individuals) to save money for future college costs. The money put into a 529 is not taxed as long as it is used for college expenses. However, the Tax Cuts and Jobs Act would greatly expand the use of 529 plans by allowing individuals to spend up to $10,000 on K-12 educational expenses, including tuition costs at private or religious schools.

This expansion presents two problems.

First, expanding the use of 529 plans in this way would benefit only some families. These savings plans are not accessible to low- and middle-income families who cannot pay out-of-pocket for private school tuition. Only those parents who can afford to save thousands of dollars to pay for private school out-of-pocket will be able to use a 529 plan

In addition, expanding the 529 will allow money to be spent on private school tuition tax-free. This incentivizes wealthy families to send their children to private and religious schools. Tax incentive programs like this are closely related to private school voucher programs and serve to redirect public funds to pay for private school tuition.

NCLD is concerned that voucher programs, education savings accounts, and tax incentive programs do not protect the rights of students with disabilities. Though these programs exist in more than 30 states across the country, our latest report on private school vouchers, education savings accounts, and tax incentive programs shows that no state upholds the rights of students with disabilities in these programs. Instead, parents are often required to sign away their rights under the Individuals with Disabilities Education Act (IDEA) to participate. And importantly, students who enroll in a private school through this type of program are not provided the same supports and services they received in their local public school.

Instead of creating a federal tax incentive program that reduces tax revenue for some families and diverts public funding to pay for private education, we should be investing in our public schools and providing resources to ensure that all students receive a high-quality education.

NCLD sent a letter to Members of the House of Representatives outlining these concerns. We will continue to work with Congress to ensure a sensible tax plan that doesn’t threaten our children’s education is passed.

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