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By Dan Perla

While 529 plans have historically been used by many middle and upper income families to save for and fund their children’s college education, recent changes to the federal tax code now enable parents of K-12 students to use new and existing 529 plans to help pay for private school  tuition. This could be game changer for middle-income day school families and represents a small step in the direction of greater affordability of Jewish day schools.

What is a 529 plan? A 529 plan is essentially a savings account which allows the account holder (typically a parent, grandparent, or other relative) to designate a beneficiary (typically a child, grandchild or other relative) and to invest money to be used for the beneficiary’s education. Any interest or investment gains earned in the account are considered tax free so long as the funds are used for qualified educational expenses. The account holder can change the beneficiary at any time but the beneficiary must be a family member. See for a list of FAQs related to 529 plans.

Under the new tax plan, up to $10,000 (per student) of private school tuition can be funded from a new or existing 529 plan. For day school parents who already have a 529 plan in place, this could obviate the need to use other savings for day school tuition. For parents who can afford to open a new 529 account or add money to an existing 529 account, the benefits are even better. More than 20 states provide a state tax deduction for contributions made to a 529 plan. For example, a tax payer in New York receives a state tax deduction for up to $10,000 per year for contributions made to the New York 529 plan ( A tax payer in Illinois receives a state tax deduction for up to $20,000 per year for contributions made to the Illinois 529 plan (  For a family in New York, the $10,000 state deduction will save them approximately $700 in state taxes each year.

Although the state tax benefit is available only to the 529 account holder, grandparents, relatives, and friends can be encouraged to make cash gifts to these accounts. These could be gifts made for a baby naming, a birthday or any other occasion. With even a modest amount of tax-free appreciation, these accounts could be expected to grow 10%-20%, tax free, by the time a family is ready to enroll their child in a day school.

A number of recent articles have suggested that private schools may be tempted to lower financial aid awards in instances where families have significant funds in their 529 plans. As a rule, colleges and universities reduce a scholarship award by 5.64% of the total value of a 529 plan. In other words, the existence of a $10,000 529 account would reduce an applicant’s scholarship award by $564. While day schools might justify taking a similar approach, this would be a mistake. Families depend on these savings accounts to help fund their children’s college education. Far too many families already feel that the day school cost-value equation simply isn’t a compelling one. Efforts to reduce scholarship awards due to the new laws would only exacerbate an already fragile situation.

The OU helped advocate for the tax law change in the use of 529 plans and they maintain a web site ( which contains an overview of the new law’s impact on day schools. We urge schools to review the site and to monitor it for any updates. In addition, we offer links below to other recent articles on the subject of using 529 plans to fund private education.