Dan Lips

Saving for School: How Arizona Could Help Families Save for Their Children's K-12 and College Educations

Posted on April 15, 2008 | Type: Policy Report | Author: Dan Lips
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In 2007, Arizona created a state tax deduction for contributions to 529 college savings plans. The deduction allows families to save tax-free for a child's college education, and the earnings accrued are not taxed if they are spent on higher education.  In 2008, individual taxpayers will be able to deduct up to $750 for 529 contributions, and joint filers can deduct up to $1,500. 

Unfortunately, that savings opportunity is not available for K-12 education, when many children most need, but cannot afford, the education opportunities that will put them on the path to higher education. Arizona could become the first state in the nation to offer a state tax benefit for contributions made into Coverdell Education Savings Accounts (ESAs). Federal law already allows families to contribute after-tax dollars into Coverdell ESAs, which allow savers to earn interest tax-free if funds are spent on K-12 or higher education expenses.

A state tax incentive for Coverdell ESA contributions would provide families with more savings options and help more children receive a quality primary and secondary education. To address equity concerns, the tax benefit could be structured to encourage individuals and businesses to make charitable contributions into disadvantaged children's ESAs.
A state tax deduction for Coverdell ESA contributions for K-12 and higher education savings would give families greater power to ensure that their children receive a quality education. But this would be only one step toward giving families real control over their children's education.

Ultimately, this reform should be paired with additional measures to give all parents the opportunity to provide their children with the best possible education. Specifically, Arizona could also offer a dollar-for-dollar tax credit for contributions made into Coverdell ESAs of students who do not enroll in traditional public schools. These policies along with other parent-centered reformscould help provide all Arizona families the opportunity to give their children a quality education.

To learn more, read Saving for School: How Arizona Could Help Families Save for Their Children's K-12 and College Educations here.

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