RALEIGH _ North Carolina families will soon be able to use money in 529 college savings plans to pay for K-12 private school costs.
The recently adopted state budget changes North Carolina's tax code to mirror recent federal tax changes that allow families to withdraw up to $10,000 a year from 529 plans to pay for K-12 private school expenses. The change means North Carolina taxpayers won't face state tax penalties if they use their 529 plans to cover K-12 bills such as tuition at private schools.
"The General Assembly of North Carolina hereby finds and declares that encouraging parents and other interested parties to save for the education expenses of eligible students is fully consistent with and furthers the long-established policy of the State to encourage, promote, and assist education," according to the new state budget.
The budget is now in the hands of Democratic Gov. Roy Cooper, but Republicans have enough votes to override a potential veto.
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The 529 plans, named for a section in federal tax code, were originally created to help families save for college by investing their money and letting it grow tax free. But the scope of the program changed in December when Congress expanded it to include K-12 private school costs.
Supporters of the program expansion say it's a victory for school choice, But critics say it's a tax break for wealthy families and could result in less federal and state money available for public education.
States run their own 529 plans. North Carolina's plan had $2.3 billion invested from 138,764 active accounts as of Jan. 16, according to the College Foundation of North Carolina, which administers the state's plan.
The College Foundation had urged people to not withdraw their 529 money for K-12 costs until state legislators provided more clarity on the issue.
State lawmakers stopped short, though, in the budget of restoring the tax deduction that used to be given to taxpayers for contributing to 529 plans.
