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Financial Planning

Maximizing Your Savings: Using an Indiana 529 Plan to Pay for K-12

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Trying to pay for a parochial school education can be a financial challenge. The good news? Indiana residents can give themselves a 20% tuition discount using a 529 plan to cover tuition expenses.

What is a 529 plan? A 529 plan is an investment account that offers tax benefits when used to pay for qualified educational expenses for a designated beneficiary. 529 plans, legally known as qualified tuition plans, are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code. Originally designed to save and invest toward college expenses, in 2017, K-12 public, private and religious school tuition became a qualified expense.

Indiana has an incredible 529 plan, the College Choice 529 distributed by Ascensus Broker Dealer Services, LLC. At Integrity Wealth Advisors we look at various tax scholarship opportunities to help fund educational expenses and the College Choice plan is a prime example. The Indiana plan offers a 20% state tax credit on the first $7,500 of household contributions. This can result in a state tax credit of $1,500 each tax year. A tax credit is a dollar-for-dollar reduction of the state tax money you owe, while a tax deduction decreases your taxable income, leading to a slightly lower tax bill.

Consider the following example:

Let's say that tuition at your child’s parochial school is $7,500 annually. Most households pay tuition using after-tax dollars via cash flow. Instead, consider funding the Indiana College Choice 529 plan either via lump sum or monthly contributions for the $7,500 tuition requirement. Then pay the school from your 529 plan instead of from your checking account.

Contributing enough for the max $1,500 state tax credit every year could yield a savings of $19,500 over the life of your child's K-12 tuition expense. If your child is college or trade school bound, you could partially fund four years of college using a 529 plan as well, for total tax credits of $25,500! (17 years x $1,500) It's a fantastic benefit!

Indiana 529 plans are easily established at College Choice Direct or through a financial advisor at College Choice Advisor.

In conclusion, at Integrity Wealth Advisors, we believe that your goal should be to reduce your lifetime tax bill and this annual strategy is a step in the that direction.

Written by: Billy Vail, RICP®