- General Best Practices
- Independent Schools
The controversial 2017 tax bill—formally the Tax Cuts and Jobs Act of 2017—that was signed into law in December has a potential benefit for independent schools that you might not be aware of: 529 plans, the popular college savings investment vehicle, can now be used to pay for K-12 tuition to the tune of $10,000 per year, tax free, in many states.
But before you run and start asking current and prospective families to dip into their accounts for this year’s tuition, there are plenty of caveats and unique circumstances that mean that parents need to talk to a financial advisor or accountant before making any decisions around using these accounts. However, with the right approach and a little research into your own state’s provisions, you can help educate around the most common reason your school is getting disqualified by prospective families: affordability.
First a little background on the 529. Started in 1996, these funds are administered by individual states and allow families to save for college and enjoy tax-free earnings on their account until a child goes to college, at which time the funds can be used, with a few restrictions, for tuition, room, board, and other educational expenses. The 2017 tax act added private and parochial school tuition to the list—with a $10,000 cap per year—with the intention of promoting school choice.
About 5.3 million households have 529 plans, and anecdotally, we’ve heard that not every independent school or parent has heard much about this new provision. And, while schools themselves should certainly not provide tax advice, get ready for general questions from prospective families that might come your way this year.
Here are a few scenarios where families with well-funded 529 plans could use these funds for tuition at your school this year:
- A family of a child in a primary school where grandparents “frontloaded” the account over five years with $150,000 could save hundreds of dollars in taxes a year by paying for all or part of their tuition with 529 money.
- A student who plans to do a post graduate year at your school, and has a 529 that’s enjoyed the growth of a long investing period from birth to age 18.
- A student who expects a full or partial college scholarship, but has plenty of money saved for college.
- Any family in a state that doesn’t require a holding period for 529 fund withdrawal*.
*In many states, there is no provision as to how long the funds must remain in the 529 account before being used for tuition, meaning families can deposit money into a 529, and take it right out the next day to pay tuition and enjoy the tax benefits, though as each state works to interpret the law, this may change. Source
So, how can an already-busy admissions office stay on top of these changing laws, and overcome the affordability challenge for families, especially millennial families, who are more cost-conscious than ever?
First, Educate Yourself with Online Resources
While each state’s interpretation of this law is constantly changing, it’s clear that more current and prospective families are going to inquire about and take advantage of their 529 savings for private school tuition this school year.
Check out these great online resources for a start:
- Articles from New York Times and Washington Post are good primers
- NAIS’ (login required) in-house counsel wrote an excellent piece on this topic
- Check out Kiplinger’s overview if you’d like a quick synopsis
- The College Investor’s how-to article gives tips on using 529 funds
- Saving for College, provides a helpful link to each state’s 529 law
Start by Adding Some Information on 529s to Your Tuition Page and Website
AIM Academy in Pennsylvania received so many inquiries regarding using 529 plans that they decided to centralize the information in one place on their tuition page, including information on how they accept and provide tax records for using 529 funds.
"AIM Academy created a web page in our Tuition and Fees section with information on using 529 assets toward tuition after receiving an inquiry from a parent soon after the 2017 tax legislation was signed," said AIM Academy CFO Sid Ghosh. "We thought it was important to provide clarification for families on how AIM can accept these tuition payments as well as to encourage them to contact a tax advisor for additional details. Currently we have several families who have used 529 assets as part of their 2018-2019 tuition payments."
Sharing 529 forms and information in one easy place gives you an entry point from search and social ads targeting prospective families, too.
Adding information about 529 plans specific to your state like AIM Academy to your tuition page and linking to trusted sources provides a great resource for prospective families.
Waynflete doesn’t share too much information on their site, but lets families know about the change, and links to a trusted source of information from Checkpoint.
Seacrest Country Day School in Naples, FL was featured in a local publication on the topic, and shares a preview of the article on their site that highlights the benefit of the new law: opening their school to more Florida families.
Landon School in Maryland shared a blog post from their CFO that provides more information on 529s and gives a financial advisor’s take on the change.
Host an Informational Event for Prospective Families this Fall
Invite a qualified tax or financial planning professional to your school for a free event for current and prospective parents to help answer questions around financial aid and 529 plans. Maybe you can find a current parent, board member or alumni who would present this information with a more personal take! Hosting such an event aligns you with a helpful source of information and opens up the door for conversations around affordability, your school’s value, and creative ways families can afford your school.
Why are we blogging about this? Providing high-quality information like this is one of several steps in the "buyer's journey" to engage families who are considering your school. Schools turn to Finalsite for design services, but also for our inbound marketing tools, and are building marketing strategies around using the best software in the industry. Learn more about how you can build on what you're already doing to bring more families in the door.
ABOUT THE AUTHOR
Hadley is Finalsite's Director of Communications and is a former independent school teacher, fundraiser and marketing director with a passion for cooking, travel, and spending time outdoors with her growing family. She founded the FinalsiteFM podcast network and enjoys meeting Finalsite clients from around the world.