obviously the kids purpose for doing it is 100% of it. Did he do it to play the villain and show how they exist in history? Like dressing up as Che or Mao? That should be fine. If he's doing it to celebrate the Klan, well that's clearly a problem.
I still don't that dressing up as a Klansman is the same as dressing up like a historical figure (perhaps with the exception of something based out Nazi Germany) but as long as the kid didn't do it out of nefarious purposes, I can't see it as anything more than a naive mistake.