Gov. Rick Snyder and State Treasurer seek Attorney General opinion on expanded use of 529 savings plans

Friday, March 23, 2018

LANSING, Mich. – Gov. Rick Snyder and State Treasurer Nick Khouri today sent a letter to Michigan Attorney General Bill Schuette seeking guidance on recently enacted federal tax law reforms that expand college savings plans to include elementary or secondary public, private, or religious school expenses.

Due to federal changes to Section 529 of the Internal Revenue Code, the state is requesting a formal opinion from the Michigan Attorney General to determine whether expanding the state’s 529 savings plans — such as the Michigan Education Savings Program (MESP) — to include private K-12 expenses with state income tax benefits would be in violation of the Michigan Constitution.

Under the Michigan Constitution, direct or indirect public aid to any non-public school is prohibited.

“Just as federal tax reforms impacted Michigan’s personal exemption, we are examining how the law now applies to state tax benefits for Michigan Education Savings Program account owners who want to pay for private school tuition using their plan,” Gov. Snyder said. “I am requesting the Attorney General’s prompt review of this issue to provide clarity to Michigan residents and ensure the expansion does not violate state law.”

MESP is a direct-sold college savings investment plan that offers Michigan taxpayers a state income tax deduction on contributions and potential tax-free growth on any earnings if account proceeds are used to pay for “eligible expenses,” which includes tuition, fees, room, board, books, equipment and supplies required for enrollment.

Section 529 of the Internal Revenue Code was modified to expand the definition of “eligible expenses,” making private K-12 tuition an eligible expense. Previously, 529 savings plans like the MESP could only be used to cover postsecondary expenses.

“529 plans, like the Michigan Education Savings Program, provide real value for account owners,” State Treasurer Nick Khouri said. “A formal opinion will allow the state Treasury Department to administer the state tax laws as permitted under the Michigan Constitution.”

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Letter to Attorney General PDF icon