New 529 Laws and K-12 Tuition

By now you have probably heard about the last minute change to 529s that allows parents to withdraw up to $10,000 a year for K-12 private school tuition for each eligible child.  However, not every state has made it clear what the tax liabilities may be as you withdraw deposits vs. earnings.  Brian Boswell writing for Forbes online has highlighted a number of issues that states must wrestle with before deciding on the rules for K-12 withdrawals.  Most importantly Boswell points out that while parents who intend to send their students to private k-12 schools can achieve some tax benefits by utilizing the new 529s, the new tax law it is not such a great deal for state plan providers who will now have to determine how to deal with deposits that might only be around for a short time.  Where in the past new parents would start an account and hopefully continue to contribute for 18 years, now a new parent may decide to pull out funds at the start of kindergarten.  This might mean potentially less stability in a fund's holdings.   However, with the cost of college continuing to increase, awareness of college debt, and the recent attention the tax bill has given to 529s, states should see an increase in the total number of accounts.  What I would like to see is more public school families starting and consistently contributing to a child college savings through a state's 529 plan.