Despite strong public support for school choice across demographics, the Colorado state legislature is actively limiting families’ ability to choose the right schools for their children. I’m not even referencing the fact that Colorado has declined to introduce legislation expanding choice beyond public schools (like the majority of other states have done). No, I’m simply talking about the refusal to follow the federal tax code and allow 529 savings plans to be used for K-12 tuition.
529 plans are tax-advantaged savings accounts used to pay for qualified education expenses. While historically limited to higher education, in 2017 the federal tax code was changed to allow these plans to pay for K-12 tuition. This was a valuable change as millennials are the most common owners of 529 plans, close to 10% of plan owners have annual household incomes less than $50,000, and 70% have incomes less than $150,000. This broadens education opportunities for families at crucial stages in their children’s lives.
But it’s up to the states to adopt this tax code change. While the vast majority of states have followed suit, Colorado is one of twelve that have declined to do so.
If Coloradans can use 529 plan savings for private universities, why can’t we use them for K-12 private schools? In the formative stages of children’s lives, why limit choice and discourage equality of educational opportunity—especially when less than half of Colorado 3rd-8th graders are proficient in math and reading?
Relatedly, Colorado has dropped eleven spots in the latest Educational Freedom Index which is correlated to academic performance. We should be expanding education freedom for families, not reducing it.
Current 529 plan-related legislation
State Representative Colin Larson (R-Littleton) has proposed bills each of the last three years to adopt the 529 plan federal tax code and expand access for families. Each time, the Democrat-led majority has rejected it.
Continuing to advocate for families, Larson recently proposed a “compromise” bill (House Bill 1210) which would create 529 “flex” accounts for K-12 tuition, trade schools, and apprenticeship/vocational training. It would allow a one-time $10,000, penalty-free roll-over from families’ existing 529 accounts. These “flex” accounts would be federal tax-free, but the state tax rate of 4.57% would still apply.
If the bill passes it’s a step in the right direction, but it’s unfortunate that Colorado families don’t get the same tax benefits as others across the country—that families have to “compromise” on their own savings.
Why the push-back from Democrat legislators?
The Democrat-led legislature is concerned the state budget would be hurt by letting families keep more of their savings (hence the “compromise” nature of the current bill). Analysis of the original 529 bill estimated this change could reduce the 7-billion-dollar annual education budget by a maximum of 3 million dollars–a drop in the bucket especially when it means more school choice accessibility for families.
The estimated budget reduction also assumes families exercise their education-savings in masse. If that did happen there would be two reasons to celebrate: 1) Per-pupil funding in public schools would increase–since not all the pupil’s funding leaves a school when the student does, and 2) More families (using their own savings) would be choosing schools that are right for their children.
School-related unions are also pushing back on this desire to expand families’ education freedom, saying it would hurt public schools. But if public schools are serving all students well, why would increasing access to choice threaten them? Should we be doing what’s best for students, or systems?
Broad benefits of school choice
Indeed, through freeing 529 plans for K-12 private school tuition use, the Colorado legislature can make school choice more accessible to all. This delivers numerous benefits, such as:
- Choice is a good in and of itself. Empowering families to choose the right schools for their kids helps set them up for life-long success.
- School choice is shown to improve academic outcomes—especially for minority, low-income, and special needs children (it’s an equalizer!) as well as for students who remain in their district school.
- School choice can improve student safety and increase integration and tolerance.
- Choice leads to a more efficient use of tax-payers’ dollars.
- Highlighting the impact of choice this past year, parents with kids in private schools are more positive about their child’s academic, emotional, and social development.
Given these numerous benefits to so many, why is the Colorado legislature limiting families’ ability to access the right schools for their children? Let’s empower families to use 529 plans for the K-12 school of their choice—helping children flourish now and in the future.
Will Johnson, from Highlands Ranch, writes frequently on Colorado education issues.
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