529 accounts & elementary school

I have money in my child's 529 account in NY -which does not allow for w/d for private elementary schools, but I believe NJ does. I'm considering transferring funds from the NY one to a NJ one (which I haven't yet opened), so I can pay for elementary school. Has anyone encountered this situation? What's your experience been?


jules867 said:
I have money in my child's 529 account in NY -which does not allow for w/d for private elementary schools, but I believe NJ does. I'm considering transferring funds from the NY one to a NJ one (which I haven't yet opened), so I can pay for elementary school. Has anyone encountered this situation? What's your experience been?

 It’s not that NY does not allow withdrawals for K-12 tuition payments.  It’s that they flout clear federal law and IRS guidance as to tax free treatment of withdrawals of 529 gains for K-12 tuition payment, largely because they’re beholden to public teachers unions.  Principal withdrawal is treated differently.  So there’s tax consequences in NY on 529 gains withdrawal.  You should check with your tax professional for tax consequences based on your particular situation.



It is not because they are beholden to unions -- it is because education thru 12th grade is mandated and paid for by our tax dollars.   The idea was to help provide a tax advantaged way to pay for education outside of what is covered and primarily for college.  



mikescott said:
It is not because they are beholden to unions -- it is because education thru 12th grade is mandated and paid for by our tax dollars.   The idea was to help provide a tax advantaged way to pay for education outside of what is covered and primarily for college.  


Disagree.

Public education is paid for by tax dollars. So why shouldn't 529 be allowed to help pay for private education costs as is done for public and private colleges?


You can disagree -- I was pointing out the logic when 529 plans were created.  and making it clear it had NOTHING to do with Unions as the prior poster stated.


The IRS

Q. What is a 529 plan?
A. A plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training, or for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school for a designated beneficiary, such as a child or grandchild.

NYS only allows 529 to pay for 

Your 529 account can be used to pay for qualified higher-education expenses at any eligible educational institutions, including:
Postsecondary trade and vocational schools.
2- and 4-year colleges.
Postgraduate programs.

The UFT and other public education teacher unions successfully lobbied to prevent 529 from being used to help pay elementary or secondary school tuitions. It was felt doing so would cause additional students to shift to private schools.


Go further back in your research about 529 and why they were originally created.  


I always marvel that people want to pay the taxes that come with our community's quality schools and then also pay to send their kids to private schools.  I guess this is a way to get around that.

As such, I think I am against it.  Providing for public education is a civic duty.  If you want to opt out of that education, I guess that should be your right but do it on your own dime.


GoSlugs said:
I always marvel that people want to pay the taxes that come with our community's quality schools and then also pay to send their kids to private schools.  I guess this is a way to get around that.
As such, I think I am against it.  Providing for public education is a civic duty.  If you want to opt out of that education, I guess that should be your right but do it on your own dime.

They still help pay for public education.

If anything, they're doing taxpayers a favor. They lower the cost of public education. So, if a school district costs 17,000 per student/year, then the removal of 100's if not 1000's of students into private schools would be a significant saving. If they get a few thousand dollars in tax deduction,  we would be ahead.

I like the system in some European countries where it does not matter who manages the schools, public or private. Their civic duty is understood that ALL schools be supported, ALL students, no matter who manages the school. However, they have standards to be complied with. Cult like religious schools that primarily teach their cult could not be certified.


mikescott said:
Go further back in your research about 529 and why they were originally created.  

Yes, I know how they were originally created. I also know the legislative rep for a union that tells me how they manage to assert their desires. His main job is to get a some union members to attend political dinners, to grease the politician the dinner is for. That's in NYC.


GoSlugs said:
I always marvel that people want to pay the taxes that come with our community's quality schools and then also pay to send their kids to private schools.  I guess this is a way to get around that.
As such, I think I am against it.  Providing for public education is a civic duty.  If you want to opt out of that education, I guess that should be your right but do it on your own dime.

 not sure if you realize this but my kids’ 529 plans were funded with my “own dime”.


Robert_Casotto said:


GoSlugs said:
I always marvel that people want to pay the taxes that come with our community's quality schools and then also pay to send their kids to private schools.  I guess this is a way to get around that.
As such, I think I am against it.  Providing for public education is a civic duty.  If you want to opt out of that education, I guess that should be your right but do it on your own dime.
 not sure if you realize this but my kids’ 529 plans were funded with my “own dime”.

 Sure, but the tax breaks are at my expense. Seems like one of those things where the two of us are just going to disagree. You vote your way, I will vote my way and I wish you the best of luck. 


Well then thanks for the dough. Really appreciate it.


jules867 said:
I have money in my child's 529 account in NY -which does not allow for w/d for private elementary schools, but I believe NJ does. I'm considering transferring funds from the NY one to a NJ one (which I haven't yet opened), so I can pay for elementary school. Has anyone encountered this situation? What's your experience been?

Wouldn’t it be irrelevant what New York thought about the tax consequences of the withdrawals, since you live in New Jersey? The taxes are (or aren’t) paid on the income when you file a state return, not when the money is withdrawn, right? In other words, I’d investigate whether the state of residency, not the state that controls the 529 account, was what mattered.


GoSlugs said:


Robert_Casotto said:


GoSlugs said:
I always marvel that people want to pay the taxes that come with our community's quality schools and then also pay to send their kids to private schools.  I guess this is a way to get around that.
As such, I think I am against it.  Providing for public education is a civic duty.  If you want to opt out of that education, I guess that should be your right but do it on your own dime.
 not sure if you realize this but my kids’ 529 plans were funded with my “own dime”.
 Sure, but the tax breaks are at my expense. Seems like one of those things where the two of us are just going to disagree. You vote your way, I will vote my way and I wish you the best of luck. 

The argument over using tax money for private school is a really philosophical one.  You either believe that tax dollars are for public schools, full-stop, or you think that if someone pays school taxes he or she should be able to tap some of that to support a private school since private school enrollment saves the public money.  

There's more to this argument than that and both sides will try to point out practical benefits to its own preference, but I feel like both sides just disagree because of philosophical reasons.

I agree people should vote their own way on this and the democratic process should determine what public support for private education exists.  

I have contempt for attempts to battle this out through the courts and have school choice programs- which might benefit schools with a religious affiliations - declared unconstitutional.  


DaveSchmidt said:



jules867 said:
I have money in my child's 529 account in NY -which does not allow for w/d for private elementary schools, but I believe NJ does. I'm considering transferring funds from the NY one to a NJ one (which I haven't yet opened), so I can pay for elementary school. Has anyone encountered this situation? What's your experience been?
Wouldn’t it be irrelevant what New York thought about the tax consequences of the withdrawals, since you live in New Jersey? The taxes are (or aren’t) paid on the income when you file a state return, not when the money is withdrawn, right? In other words, I’d investigate whether the state of residency, not the state that controls the 529 account, was what mattered.

You can live in NJ and still be a NY taxpayer if you work in NY. 

Also, if you live in NJ but are also a NY state taxpayer you can deduct your NY 529 contribution from your NY state taxes. So New York state has already provided a tax benefit at the point of contribution.

Unfortunately, the NJ 529 does not allow a state tax deduction for contributing to a NJ 529. 


shoshannah said:

 It's the state where the 529 was established, and it affects taxes paid to that state no matter where you live. So if you work in New York you pay NY taxes. So the NYS 529 holder would get a break on NYS taxes that otherwise would have been paid on the earnings of the 529.

 Could you clarify? Say I, a New Jersey resident, have savings in Ohio's 529 plan. If I withdrew everything from that account for a non-qualifying expense, I'd owe taxes on the gains to Ohio rather than New Jersey?


DaveSchmidt said:


 Could you clarify? Say I, a New Jersey resident, have savings in Ohio's 529 plan. If I withdrew everything from that account for a non-qualifying expense, I'd owe taxes on the gains to Ohio rather than New Jersey?

Actually, my original response was not very clear. Sorry about that. I fixed it.

No, you would not pay taxes to Ohio. You'd pay wherever you are a taxpayer. Many NJ residents work in NY and therefore pay NY state taxes.

The incentive for buying a NY 529 if you pay taxes to the state of NY is that NY allows a tax deduction for CONTRIBUTIONS to its state's 529 plan if you are a taxpayer in that state. 

The NJ 529 does not allow a tax deduction for contributions. Therefore, there is no tax advantage upon contributing to a NJ 529. The only advantage is the tax-free earnings. If you live in NJ and don't work in NY (or another state that allows a deduction for 529 contributions), then there is no incentive to get any particular state's 529. You won't get a tax advantage when you contribute. Get one from any state that looks like they have good investments and low fees.


shoshannah said:

Actually, my original response was not very clear. Sorry about that. I fixed it.
No, you would not pay taxes to Ohio. You'd pay wherever you are a taxpayer. Many NJ residents work in NY and therefore pay NY state taxes.

Thanks. So unless the OP works in New York, it sounds like he or she might not have to transfer the money to a different 529 in order for private elementary school expenses to qualify for the tax break.


I believe that if you live in NJ and open a NJ 529 and attend a NJ college the student could receive a maximum $1,500 freshman scholarship as well.


DaveSchmidt said:


shoshannah said:

Actually, my original response was not very clear. Sorry about that. I fixed it.
No, you would not pay taxes to Ohio. You'd pay wherever you are a taxpayer. Many NJ residents work in NY and therefore pay NY state taxes.
Thanks. So unless the OP works in New York, it sounds like he or she might not have to transfer the money to a different 529 in order for private elementary school expenses to qualify for the tax break.

I don't know anything about using it for private elementary school. I was under the impression that the new tax law includes a provision for using 529s for private K-12 now, whereas it used to be usable only for college.  Maybe the federal tax law says that states CAN allow it, not that they MUST allow it? In that case, NY can prohibit it. If it's written into the rules of the NY 529, wouldn't state where the school is located be irrelevant? I really do not know.



shoshannah said:

Maybe the federal tax law says that states CAN allow it, not that they MUST allow it? In that case, NY can prohibit it. If it's written into the rules of the NY 529, wouldn't state where the school is located be irrelevant? I really do not know.

Yes, my understanding is that a state like New York can still consider the gains taxable income. But if someone with money in New York’s 529 pays state taxes only to New Jersey, I don’t know why New York’s prohibition would matter.

Since the OP hasn’t chimed in in a while, I’ll let it rest there.

Oh, and what GoSlugs said.


Robert_Casotto said:


GoSlugs said:
I always marvel that people want to pay the taxes that come with our community's quality schools and then also pay to send their kids to private schools.  I guess this is a way to get around that.
As such, I think I am against it.  Providing for public education is a civic duty.  If you want to opt out of that education, I guess that should be your right but do it on your own dime.
 not sure if you realize this but my kids’ 529 plans were funded with my “own dime”.

 You got a tax deduction or deferral for it, didn't you?  That's not your dime, it's ALL of our dime.



sac said: You got a tax deduction or deferral for it, didn't you?  That's not your dime, it's ALL of our dime.

 ?


NJ offers no tax deduction for contributions to a 529 nor is there any “deferral” re withdrawal of principal from a 529, NY or otherwise, which such principal portion was, is and will always be “my dime”, and that principal portion (See “my dime”) is subject neither to tax nor penalty.


A primer on basic 529 rules may be helpful.




Isn't there a federal tax deduction?


No.  Only certain states.  The Federal advantage comes in when you withdraw it.  The gains are not taxable if used as intended.


And the idea that those gains would be taxed in other savings or investment accounts is what people mean when they say everybody bears a cost of the 529 break.


FilmCarp said:
No.  Only certain states.  The Federal advantage comes in when you withdraw it.  The gains are not taxable if used as intended.

 Ah, OK.  I knew that there was some kind of federal tax benefit.




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