Let’s expand 529 plans to help homeschoolers amid COVID-19 pandemic: Jude Schwalbach
Homeschooling — a few weeks ago the domain of about 3% of the school-aged population — made headlines this month as COVID-19 rapidly closed schools across 46 states, the District of Columbia, and Puerto Rico.
Indeed, the coronavirus has meant that “We’re All Homeschoolers Now.”
While millions of children — and their parents — are experiencing homeschooling for the first time this month, policymakers at the local, state, and federal level are grappling with ways to quickly adjust rules and regulations that may hamper access to content for students across the country.
Policy responses to the coronavirus pandemic should be temporary and targeted, and tied directly to the emergency itself.
One such policy reform would be to allow Americans to access their 529 savings plans for homeschooling expenses. Those 529 savings plans are tax-neutral savings accounts funded with after-tax dollars contributed by the account owner or anyone else who wishes to put money into them.
Anyone can contribute to a designated beneficiary’s 529. Interest that accrues in the fund is tax-free, as long as funds are put toward K-12 and higher education expenses. That means that there’s no “second layer” of tax on the savings and investment in the account.
Those 529 savings accounts are extremely popular, with holdings doubling to $275 billion between 2009 and 2017. Moreover, withdrawals from 529 savings accounts for education expenses are not subject to federal income tax.
Currently, 529 saving plans can pay for a broad swath of education-related costs, such as college expenses, and, more recently, private elementary or secondary school tuition in certain states.
Yet, homeschooling expenses are excluded from the eligible uses of 529 savings accounts.
In 2017, Sen. Ted Cruz, R-Texas, tried to incorporate such an expansion of 529s to cover homeschooling expenses into the Tax Cuts and Jobs Act at the same time they were expanded to include K-12 expenses.
That would have broadened access to 529 savings accounts even further. Although the amendment was stripped at the last minute from the Tax Cuts and Jobs Act, Congress should immediately revisit it to help families struggling with the ramifications of COVID-19.
Families could use their 529 plans to pay for curricula, books, online classes, private tutoring (so long as the tutor does not live in the same home as the child), and other education expenses.
Making 529 savings accounts more accessible would give families easier access to their own money.
The 529s were wisely expanded at the end of 2017 to allow individuals to use their savings for more than just college expenses, enabling account holders to pay for K-12 education-related expenses.
Immediately expanding qualified expenses to include homeschooling—reflecting the fact that nearly every American family currently has to homeschool as a result of COVID-19—would be a timely and targeted policy.
More than 123,000 public and private schools across the country have had to shut their doors due to the coronavirus. More than 50 million children have been affected by these closures.
Although not every American has a 529 account, expanding the option of what families can pay for with their own savings is smart policy, as families struggle to maintain education consistency for their children.