How we use the resources God has given us demonstrates our priorities and habits. It can be humbling to discover or reveal those to others. But examining it is important for good stewardship of the gifts God has entrusted each of us. This task is important, not just for itself, but especially when it deeply affects our children’s upbringing.
We wish to provide the best education possible at the lowest possible cost. This involves charity and respect from parents for the people they entrust their children to for such a significant portion of their development, as well as regard from teachers and a school for families’ other financial responsibilities. Money can never fully compensate what a good school ought to provide children, yet people also tend to get what they pay for. As Saint Paul writes, “a worker is worthy of his wages.” And families are ultimately the responsible party for their children’s education, not taxpayers.
Thankfully, state and federal lawmakers have created several opportunities parents can use that reduce their financial sacrifices for choosing a world-class education. Two are currently available to all Redeemer Classical families, and a third will be available to our families in the 2019-20 school year.
1. Indiana tax deduction for private education expenses.
Hoosier families can deduct up to $1,000 per child each year from their taxable income for private education expenses, including tuition, supplies, and school books. See details from EdChoice and Indiana’s Department of Revenue.
2. Indiana tax deduction for contributions to a 529 education savings account, plus smaller potential federal tax benefits.
The federal tax overhaul that became law in December allowed benefits from 529 college savings accounts to apply also to K-12 expenditures of up to $10,000 per year.
This offers two potential ways to reduce private school expenses: through lifted federal taxes on income these investment accounts accrue, and through Indiana’s 20 percent state tax deduction for annual 529 contributions. The latter is worth up to $1,000 per year per contributor, while the possible savings from the former depend on how early parents open the plans and how well their portfolios perform.
Jon Dize of Fort Wayne’s Lutheran Schools Partnership gives further details:
- Gifts to approved plans in Indiana are eligible for a 20% Indiana state tax credit, up to $5,000, that could result in a state tax credit up to $1,000.
- Contributions to 529s qualify for the gift-tax annual exclusion, currently at $15,000 per recipient ($30,000 for married contributors). Contributors may be able to even make five years’ worth of gifts in one lump sum ($75,000 single, $150,000 for those filing jointly).
- Contributors can be anyone. So if grandma and grandpa give $5,000 to your children’s 529 accounts in a year, they can reduce their Indiana income taxes by $1,000 that year.
- According to Indiana’s plan FAQ, while you cannot create a 529 account for an unborn child, you can create an account, name yourself as beneficiary, but later change the beneficiary to a future child.
- In Indiana, there is not a waiting period between donations and withdraws as long as the 529 account stays open for at least a year from the initial deposit date.
To qualify for Indiana deduction, families must use an Indiana-approved 529 plan, which can be found here: CollegeChoice 529. Consult with a financial professional to better understand exactly how much this provision can save your family. Nothing in this article constitutes legal or financial advice; it is merely starting information to help parents pursue further details themselves.
3. Tax-credit scholarships, a school choice program that uses entirely private funds.
Redeemer Classical is on track to be eligible for Indiana’s tax-credit scholarship program starting school year 2019-20. We are on track to be accredited in early fall 2018 through a private classical association by September, a requirement for participating in Indiana’s tax-credit scholarships. Families are only eligible for this choice program if their annual income falls below a certain threshold. You can check your likely eligibility with this ten-second quiz. Receiving the scholarships requires an application that includes income verification.
Our tax-credit scholarship account is already open for donations, through the Lutheran Scholarship-Granting Organization. Funds donated there will accrue until we’ve met all the requirements for program participation, at which point we can apply them to families’ tuition.
We plan to not participate in Indiana’s school voucher program, as it requires testing, curriculum, and teacher training at odds with our educational philosophy. If the legislature changes that, we will re-evaluate.
More information on these and other tools for managing tuition costs will be posted on our blog as it’s available. We also encourage families to reach out to grandparents and others who love their kids to help support their upbringing, and to examine their finances with a qualified counselor to discover ways to prioritize a sound education with proven lifelong benefits.