Michigan 529 Plans

As you all know last year's Tax Cuts and Jobs Act (TCJA) included an expansion of tax-advantaged college savings program to allow account holders to use their savings for up to $10,000 per year of K-12 education expenses. The addition of this provision to the TCJA was intended to facilitate greater school choice by allowing families to use the savings programs for K-12 expenses like private school tuition. However, you need to be aware that there is an issue in applying this law to Michigan residents if they used the MESP as their 529 Plan. Michigan’s constitution apparently has a prohibition against the use of aid to private schools!

Michigan, like 37 other states, prohibits direct government aid to religious schools. Commonly referred to as Blaine Amendment provisions, they were enacted to prevent states from funding parochial schools, often Catholic schools. Michigan’s prohibition, found in Article VIII, Section 2 of the 1963 Constitution, is broader than other states’ limitations because it forbids aid to any nonpublic school, not just religious schools. It was adopted in 1970 and specifically prohibits:
• the use of public funds to aid any nonpublic elementary or secondary school;
• the use of public funds, except for transportation, to support the attendance of any students or the employment of any person at nonpublic schools or at any other location or institution where instruction is offered in whole or in part to nonpublic school students; and
• any payment, credit, tax benefit, exemption or deduction, tuition voucher, subsidy, grant or loan of public monies or property, directly or indirectly, for the purposes identified here.

Thus, currently Michigan 529 plans cannot be used for K-12 education costs without conforming law changes.