In a new report published today by the Goldwater Institute, Heritage education analyst Dan Lips proposed a new tax break for education savings accounts.
Arizona is one of more than 30 states that offer a state income tax deduction (or credit) for contributions made into state-sponsored 529 college savings plans. Under federal law, interest accrued in these accounts is not subject to tax if it is spent on higher education expenses. The College Board estimated that 9 million Americans own 529 accounts with more than $93 billion invested altogether, as of 2006.
Parents and taxpayers should question why these state tax incentives are only available for families who save for college and higher education expenses, not K-12 education. Under federal law, families can save tax-free for their child’s K-12 education expenses by investing in a Coverdell Education Savings Account. But no state yet offers a similar tax incentive for Coverdell ESA contributions.
The new Goldwater Institute report outlines how Arizona could become the first state in the nation to offer tax benefits for saving for both K-12 and higher education—an important step toward giving families the freedom to direct their children’s education.