Le gal gue st c o lu m n
WITHDRAWAL OF UP TO $10K FROM START COLLEGE SAVINGS PLAN FOR K-12 EDUCATION AVAILABLE UNTIL END OF YEAR
BY: REBECCA HINTON, TAX AND ESTATE PLANNING ATTORNEY, TAYLOR PORTER LAW FIRM Parents of K-12 students have three months remaining to withdraw up to $10,000 from their START (college) ESA accounts to pay tuition at an elementary or secondary school (i.e., K-12 tuition), as designated by Act 56 (SB 78), effective August 1, 2020, authorized by the Louisiana Legislative Regular Session and Governor John Bel Edwards. Under default Louisiana laws, funds within a START (college) program generally cannot be used to pay for elementary and secondary education barring grants allowing such distributions. Act 56 of the 2020 Regular Session of the Louisiana Legislature grants an exception to this general rule, allowing distributions from a START (college) ESA to fund K-12 tuition in 2020. If a party chooses to take advantage of this allowance, disbursements from START (college) ESA accounts for this purpose are capped at $10,000 with respect to a beneficiary, and the disbursements cannot include earnings enhancements or interest thereon. Funds must be withdrawn from a START (college) ESA account by December 31, 2020 in order to take advantage of this opportunity.
associated with enrolling in college or other postsecondary education institutions. Both the START Program and the START K-12 Program are implemented under and consistent with federal guidelines applicable to state 529, education savings programs. As with the START Program, the Louisiana Tuition Trust Authority oversees the administration and operation of the START K-12 Program. There are tax and financial benefits associated with an ESA established under the START or START K-12 Programs, but these benefits currently differ depending on whether you are investing in the START Program as opposed to the START K-12 Program. A brief overview of the primary benefits, and key differences between the START and START K-12 Programs, includes:
•Amounts contributed to a START (college) ESA are eligible for an “earnings enhancement,” which is a percentage match by the State of Louisiana on amounts contributed to these START (college) ESAs. The amount of the earnings enhancement available depends on the ESA owner’s income, and ranges from 14% for owners who have adjusted gross income (“AGI”) below $30,000 to Origin of the START K-12 Program: START K-12 (Student 2% for owners who have AGI in excess of $100,000, and also the Tuition Assistance and Revenue Trust Kindergarten Through ESA owner’s relationship to the beneficiary. In typical scenarios, Grade Twelve) allows parents, grandparents, and other loved ones ESA account owners who are family members of the account of public and private school students to set up a 529 plan to pay beneficiary are eligible for the earnings enhancement. Earnings for elementary and high school education. Amounts contributed enhancements are earned on an annual basis, and posted into the and earned in an Education Savings Account established under ESA on December 31 each year. Earnings enhancements are not the START K-12 Program can be used to pay for “qualified available for amounts contributed to START K-12 ESAs under the education expenses,” which include tuition owed in connection current law. with enrollment or attendance at a public or approved nonpublic •Income earned on amounts invested in both START and START elementary or secondary school in Louisiana that includes any K-12 ESAs is not subject to federal or state income tax as long as grades kindergarten through 12th grade. the income is distributed to pay for “qualified education expenses” for the beneficiary of the ESA. Announced originally in August 2018, the START K-12 Program •Amounts deposited into a START (college) ESA can be excluded is intended to implement the expansion of state 529 programs from Louisiana taxable income, up to $2,400.00 for individual to cover elementary and secondary education, in addition to the taxpayer ESA owners, and up to $4,800.00 for married taxpayer benefits previously allowed for postsecondary institutions, as ESA owners filing jointly, per beneficiary. This same income authorized by the Federal Tax Cuts and Jobs Act of 2017. In the exclusion is not presently available for contributions to START past, 529 plans could only be used for postsecondary (college) K-12 ESAs. expenses, but federal law recently expanded 529 plans to cover •While the START Program and the START K-12 Program offer a private school elementary and high school tuition, and Louisiana variety of saving funds, the amounts contributed to the Louisiana has now followed suit with the enactment of this new law. Though Principal Protection Fund (Fixed Earnings), if this fund is selected federal law now allows use of funds within 529 programs to cover by the ESA owner, are guaranteed by the State of Louisiana. elementary and secondary education expenses, Louisiana has •Amounts held within START and START K-12 ESAs can be chosen to operate its START K-12 Program separately from its protected from claims of creditors of ESA account owners, existing START (college) program, and this segregation of funds contributors and participants. generally prohibits the use of funds within a START (college) •Funds within a START (college) ESA cannot be used to fund program for K-12 tuition purposes. For 2020, Act 56 (SB 78) elementary and secondary education tuition without specific provides an exception to this general prohibition, allowing the use authorization by the Louisiana Legislature (e.g., through Act of funds otherwise set aside for college purposes to instead fund 56 (SB 78)). Nevertheless, if an individual establishes a START private school elementary and high school tuition. K-12 ESA and has funds remaining after the beneficiary of the ESA graduates high school, such excess funds can be rolled into a Basics of the START K-12 and START Programs: The START START (college) ESA to fund qualified higher education expenses K-12 Program shares similarities with Louisiana’s existing START of the beneficiary. Program that establishes education savings accounts for expenses www.abcpelican.org/newsletter
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