One tax break I'm glad to see go away: private school savings subsidies
At the end of this year, Coverdell accounts are set to disappear.
If your reaction to this is a gigantic shrug, then either you aren't sending your kids to private school or you're not involved in the great debate over public versus private school.
There's nothing necessarily wrong with these savings accounts, but I'm glad to see the perk eliminated. Barring a congressional reprieve, the Coverdell tax break will expire Dec. 31.
Coverdell Education Savings Accounts let people save up to $2,000 a year in an investment account. The contributions aren't tax deductible, but investors pay no taxes on the money the investment earns, as long as it goes to pay for qualified educational expenses.
They're a little like 529 college savings plans, which also offer tax-free investment earnings, as long as you spend the earnings on qualified educational expenses.
The differences: 529 accounts help families save for college or graduate school. Coverdell accounts help you pay for private elementary or secondary school.
529 plans also have a dramatically higher annual contribution limit: as much as $200,000 for 529s vs. $2,000 for Coverdells.
Despite the low contribution limit, it's possible to stash a fair amount of money in a Coverdell account.
Save $2,000 a year for 16 years and earn an average of 6% annually, you'll have $54,425. Deduct the $32,000 in original contributions, which aren't tax deductible, and you've got a gain of $22,426.
Most people pay 15% in capital gains tax, or $3,364.
Saving less than $3,400 on 13 years of elementary and secondary school seems like a paltry return, and in absolute terms it is.
But if you're spending money on tuition, every little bit counts.
The big question, I think, is whether we as a society should subsidize people who opt out of the public school system. Those parents still pay property taxes, of course, and may vote in favor of school bonds and other education-related tax levies.
Even so, every kid whose parents are organized and affluent enough to send him or her to private school means a local public school that's missing a student with organized, affluent parents.
In general, these are parents who demonstrate their love for their children in ways that schools find helpful.
Schools are nicer, more effective places to work or learn when most of the kids have had breakfast, are wearing clean and weather-appropriate clothing, have at least attempted their homework, have a little money for field trips or extra supplies, and who are growing up in a home where parents read, have decent levels of education themselves and value education for their children.
Schools benefit from parents who have time to volunteer as classroom aids, gardeners or event planners. In some affluent districts, the PTA even funds extra teacher positions, particularly for such "extras" as art and music.
If all those students and their parents abandon public schools, then public schools will become the last refuge of kids whose parents are neither organized nor affluent.
The people who think that public schools aren't good places to learn will have created a self-fulfilling prophecy.
We looked at a private school when our son began his elementary years, and we thought it was great, if expensive. In the end, though, we were delighted to find that he was eligible to attend an excellent public school, where he's doing well.
We're lucky. Not everyone has a public school that serves as an alternative to private school.
That being said, if you want to opt out, that's your business. I just don't think we should be offering tax freebies for you to do it.