The 2017 tax reform package expanded 529 plan benefits to include tax-free withdrawals for private, public, or religious elementary, middle, and high school tuition. The law also allows account owners to roll traditional 529 accounts into 529 ABLE accounts without taxes or penalties. This page includes all the information available on this and other new benefits of 529 plans as of 2023 and will be updated regularly as additional details become available.
In this article
- 529 plans can be used for private elementary and high school tuition
- States that don’t consider K-12 tuition a qualified expense
- A 529 account can be rolled over to an ABLE account
- Pros and cons of using a 529 plan for private school expenses
529 Plans Can be Used for Private Elementary and High School Tuition
The Tax Cuts and Jobs Act, signed into law in December 2017, allows families to use 529 plans to pay up to $10,000 in tuition expenses at elementary or secondary public, private or parochial schools. The changes became effective January 1, 2018.Free tool: Calculate how much you need to save in a 529 plan to cover private school tuition costs.
Federal Tax Benefits
529 plans are tax-advantaged accounts that offer tax-free earnings growth and tax-free withdrawals when the funds are used to pay for qualified expenses. Before the Act, qualified expenses were limited to costs associated with attendance or enrollment at a college, university, or other accredited post-secondary institution. Today, families can also take tax-free withdrawals to pay for up to $10,000 of K-12 tuition.
Private School Tuition Might be a State Tax Deduction
Over 30 states offer a tax credit or deduction for contributions to a 529 savings plan. In most cases, the contributor must use their home state’s plan to qualify. Still, families who live in Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio, and Pennsylvania can claim a tax deduction for contributions to any state’s 529 plan. Maximum deductions and credits vary by state.
It’s important to remember that these state tax breaks are only available when the funds are withdrawn to pay for expenses that the state considers qualified, which may or may not include K-12 tuition. States are currently reviewing the impact of the federal tax change to determine whether updates to state law are required.At the state level, non-qualified withdrawals may be subject to state income tax and, in some cases, a penalty on the earnings portion. You may also have to repay any deductions or credits claimed.
States That Don’t Consider K-12 Tuition a Qualified Expense
Many states do not consider K-12 education a qualifying expense, so they have not decided to follow the federal tax laws. If you live in one of these states and take money out of your 529 plan to pay for K-12 education, you may owe state taxes for the withdrawal.
The states where you may owe for these withdrawals are:
- California
- Colorado
- Illinois
- Michigan
- Minnesota
- Nebraska
- New York
- Oregon
Keep in mind changes could happen at the state level at any time. We will continue monitoring this and keep the list as up-to-date as possible. For the most up-to-date information, see our 529 comparison tool.
Selecting a 529 Plan
When deciding which plan to use for private school education funding, you’ll want to start by exploring your home state’s plan. Over 30 states offer a tax credit or deduction for 529 plan contributions, but non-qualified withdrawals can be subject to state tax recapture. There are no specific 529 portfolios designed for private K-12 education funding, but that doesn’t mean you can’t find suitable investments. With less time to recover from a market downturn, you want to explore conservative options such as a money market or a stable value portfolio.
How Much to Save for K-12 Tuition
To create an effective 529 funding strategy, you’ll need to determine how much is needed to fund the lesser of the total tuition liability or the maximum allowable withdrawal amounts so that you will end up with a $0 account balance after paying the final year of private school tuition. This could be achieved with an initial lump sum deposit, monthly contributions, or a combination.
For many people, annual expenses will exceed the $10,000 tax-free withdrawal limit. According to the Private School Review, private school tuition costs for the 2023-24 school year ranged from $3,926 – $29,363 for elementary school and $5,745 – $41,805 for high school. Any cost gaps – amounts that 529 plan savings won’t cover, will have to be paid with current income, scholarships, financial aid, or other sources.To help you calculate how much to save in a 529 plan, we’ve developed the 529 Savings Calculator for Private K-12 Tuition. Example: You want to use a 529 plan to pay for your two-year-old child to attend private school from 9th through 12th grade. Annual tuition is currently $5,000 but has been increasing at 5.5% yearly. You have $10,000 to deposit today. Enter these figures to determine how much additional you’ll have to contribute each month to pay the tuition costs from your 529 plan savings.
A 529 Account Can be Rolled Over to an ABLE Account
The new tax law also allows tax-free rollovers from traditional 529 savings accounts to 529 ABLE accounts. ABLE accounts offer tax-free investment growth and tax-free withdrawals when the funds are used to pay for qualified disability expenses, including education, job training, healthcare, and financial management. Contributions, including rollover contributions, are limited to $15,000 per year, and only the first $100,000 saved in the account is exempted from the $2,000 Supplemental Security Income (SSI) limit. Beneficiaries with account values greater than $100,000 will not receive SSI benefits but will still receive Medicaid.
Under the current law, individuals working and earning income can contribute an additional amount to an ABLE account up to the current poverty level, above the $15,000 limit. This assumes they do not participate in their employer’s retirement plan.
To qualify for an ABLE account, an individual must have been diagnosed with a significant disability before their 26th birthday, which is expected to last at least 12 consecutive months. The individual must also be receiving benefits under SSI and/or SSDI or be able to obtain a disability certification from a doctor. Starting in the 2026 tax year, the ABLE Age Adjustment Act will increase the age of disability onset from 26 to 46, increasing eligibility for millions more.
When You Might Want to Use Your 529 Plan for Private Tuition
Often, using a 529 plan for private school when your child is young can mean you miss out on potential tax benefits. However, there are some circ*mstances when using the 529 for primary or secondary expenses makes sense. For example, it may emerge that your child won’t need all the funds for college, whether they decide not to pursue higher education, want to attend an affordable college or look likely to get a scholarship.
In this case, if you are already paying for a private school and don’t have another child whom you could make the plan’s beneficiary, it may make sense to use some of the 529 for their secondary school tuition. This could also be the case if you’ve earned substantial gains through the 529 plan and want to use them with qualified distributions, such as elementary or secondary school tuition.
Using the 529 to pay for elementary or secondary school can also benefit if you get tax benefits. If your state gives a tax deduction for 529 plan contributions, you can capture a deduction by paying your child’s school fees into a 529 plan before withdrawing the funds and using them to pay tuition. You’ll pay the same expense you were planning to pay anyway, but you’ll benefit from a tax deduction and may even get a credit.
Homeschooling Expenses
Only private school tuition (not other fees) are qualified distributions under 529 plans. There is no provision to use 529 plan funds for homeschooling expenses, but some states classify homeschooling as a type of private school. If you live in one of these states – Alaska, Indiana, Kansas, Kentucky, or Texas – you may be able to use funds from your 529 plan to cover certain homeschooling expenses that meet the same criteria as tuition.
Alternatives to Pay for Private School
There are other types of plans, and education savings accounts to help pay for private school tuition that you can use to cover a broader range of educational expenses no matter where you live. For example, Coverdell ESAs allow you to use funds for a range of qualified education expenses. However, these plans have strict contribution limits, so comparing all options is important to determine the best for your situation.
Pros and Cons of Using 529 Plans for Private School
When weighing any important financial decision, you’ll want to look at the positives and negatives of moving forward. The pros and cons of using your 529 plan for private tuition could vary by person as your financial situation could change the impact. Let’s look at the most generic pros and cons of making this decision that are relevant for everyone.
Pros of using 529 for private school:
- Capital gains tax: Depending on your state, you can avoid capital gains taxes at a federal and possibly state level.
- Tax deductions: Your state may offer state-tax deductions or credits on contributions, allowing you to get tax benefits on tuition expenses.
- Growing available funds: You could grow your 529 accounts by investing more money earlier.
Cons of using 529 for private education:
- Limit returns: You may limit the returns you earn on your 529 by taking money out too early.
- Could be taxed: Not all states give tax deductions on contributions, and some consider K-12 tuition a non-qualified distribution, limiting state-tax benefits.
Ultimately, whether you should choose to use a 529 plan to pay for private school expenses depends on your family’s situation. Some factors to weigh with the pros and cons above include:
- How much you have in 529 assets
- How much do you plan to add to your 529 plan
- How much do you think you’ll need to pay for your child’s college education
- Your state’s tax rules around 529 disbursem*nts
Frequently Asked Questions (FAQs) for 529 Plans and Private Tuition
We’ve compiled some of the most important and frequently asked questions regarding using a 529 plan for private tuition and answered each below.
Can you use 529 for private school K-12 expenses?
Under the federal tax code, the IRS considers K-12 school tuition a qualified distribution for 529 plans, but this does not include other expenses such as books and computers. Private school tuition may or may not be a qualified distribution for state tax, depending on where you live, as rules vary by state.
Can I use 529 for private tutoring?
No, private school tutoring is not a qualified expense. When using a 529 plan to pay for a private school, only private school tuition is considered a qualified distribution from the plan. This does not include tutoring at an elementary or secondary school level.
Can 529 be used for private high schools in California?
Although California residents can access the same federal tax benefits of using a 529 for high school, their state tax will be adversely affected. California considers 529 withdrawals for secondary school tuition a non-qualified distribution and even imposes a penalty.
Can I use the proceeds of a 529 plan for homeschooling?
You might be able to use a 529 plan to cover homeschooling, depending on the state that you live in. Some states consider homeschooling a type of private school, so you may be able to claim qualified expenses related to your child’s homeschooling. The states that allow this type of expense are currently:
- Alaska
- Indiana
- Kansas
- Kentucky
- Texas
Bottom Line
Your 529 plan can pay for private school K-12 tuition and other expenses. Whether you pay taxes for the withdrawals depends on your state, and whether you should do it depends on your financial situation. It might be a good idea if you have enough to pay for college and can’t transfer the plan to another relative to be the new beneficiary.
Find out about your state’s plan
FIND A 529 PRO
Related articles
Don’t count on a 529 state tax break for K-12 tuition
New tax law brings big changes to 529 plans
Final GOP tax bill expands 529 plans: Here’s who will benefit
