The tax plan passed at the end of 2017 has a bonus for parents whose children attend private elementary and high schools. You can now use funds from a 529 savings plan to pay for these expenses, up to a maximum of $10,000. In South Carolina and other states that allow a tax deduction for 529 plan contributions, this change can mean significant savings on your state income taxes.
For example, the Charleston, SC both Porter-Gaud and Ashley Hall have high school tuition that exceeds $23,000 per year. By using the SC Future Scholar program as the funding vehicle for this tuition, families can save between $500 and $700 on their state income taxes.
To take advantage of this income tax break, simply open a Future Scholar 529 plan and fund the plan with the money you will be sending to the private school anyway. Then, request the plan send the money to the students account at the school of your choice. By using the 529 plan as a middle man in the transaction you will save yourself 5% to 7% on your annual tuition expenses by lowing your state income tax liability for the year you make the contribution.
It is also important to understand any sales charges associated with your 529 plan investments. In South Carolina you can open a 529 plan directly with the sponsor and avoid sales charges and loads. If you go through a broker your savings could be negated by the additional expenses. Another good reason to work with a fee-only financial advisor.
While there are no limits to the amount you can contribute each year to a 529 plan, you should understand that contributions are considered gifts. Contributing more than $14,000 per parent per year can be complicated but there are strategies to contribute much more in a single year and stretch the tax benefits of doing so.
You should also understand how using this tax saving strategy will impact your savings goals for post high school education. College expenses will still need to be planned for and funded, so have a plan in place to address both education funding needs. Talk to your tax professional or financial advisor about not only maximizing the tax advantages of a 529 plan for college- but for private elementary and high school as well.