Can I use 529 funds for K-12 private school?

Navigating the Use of 529💡 Definition:A tax-advantaged savings plan designed to encourage saving for future education costs, with tax-free growth and withdrawals for qualified expenses. Funds for K-12 Private School

As educational costs rise, families are seeking savvy ways to make the most of their savings💡 Definition:Frugality is the practice of mindful spending to save money and achieve financial goals.. One question that often arises is whether 529 plan funds, traditionally reserved for college expenses, can be used to cover the cost of K-12 private schooling. The short answer is yes, and recent legislative changes have expanded these possibilities even further. This article explores how you can leverage💡 Definition:Leverage amplifies your investment potential by using borrowed funds, enhancing returns on your own capital. 529 funds for K-12 education, the recent changes in rules, and important considerations to keep in mind.

Understanding the Basics: 529 Plans and K-12 Education

Initially designed to provide tax advantages for college savings, 529 plans have evolved. Since the 2017 tax reforms, families could withdraw up to $10,000 per year per beneficiary💡 Definition:The person, trust, or organization that receives the life insurance payout. for K-12 tuition at private, public, or religious schools. However, these limits and the scope of what's considered a "qualified education expense" have recently expanded.

Legislative Changes Effective July 2025

Effective July 5, 2025, new federal legislation (H.R. 1) has broadened the definition of qualified K-12 expenses. Here’s what you need to know:

• Expanded Qualified Expenses: Beyond tuition, families can now use 529 funds for:

  • Books, curriculum, and instructional materials
  • Online educational materials
  • Tutoring (provided the tutor meets specific qualifications)
  • Standardized test fees (e.g., SAT, ACT, AP exams)
  • Dual enrollment fees for college courses taken during high school
  • Educational therapies for students with disabilities (e.g., occupational, behavioral, speech-language therapies)

• Increased Limit: Starting January 1, 2026, the annual withdrawal limit increases to $20,000 per student.

Real-World Examples

Example 1: Private School Tuition

Consider a family with a child attending a private high school. In 2025, they could withdraw up to $10,000 tax-free to cover tuition. By 2026, they could potentially increase this amount to $20,000, using it for tuition as well as additional expenses like textbooks and standardized test fees.

Example 2: Homeschooling

A homeschooling family could use 529 funds to purchase curriculum materials and pay for online courses. For instance, if they spend $5,000 on curriculum and $2,000 on online classes, these expenses could be covered within the $10,000 limit in 2025. From 2026, they could expand their budget💡 Definition:A spending plan that tracks income and expenses to ensure you're living within your means and working toward financial goals. to include tutoring and therapies as needed.

Important Considerations and Common Mistakes

State Tax Implications

While federal law💡 Definition:Regulation ensures fair practices in finance, protecting consumers and maintaining market stability. allows for these expanded uses, state tax treatment of 529 withdrawals can vary. Some states may not conform to the federal rules for K-12 expenses, potentially taxing or penalizing such withdrawals. It's crucial to consult with a local tax advisor or review your state’s regulations before making withdrawals.

Tutor Qualifications

To qualify for 529-funded tutoring, the tutor must meet specific qualifications: they should be a licensed teacher, a current/former teacher, or a recognized subject matter expert. Importantly, the tutor cannot be related to the student, ensuring that the educational support is impartial and professional.

Penalties for Non-Qualified Withdrawals

Withdrawals used for non-qualified expenses are subject to federal income tax and a 10% penalty💡 Definition:Fee for withdrawing funds before maturity on 💡 Definition:Income is the money you earn, essential for budgeting and financial planning.earnings💡 Definition:Profit is the financial gain from business activities, crucial for growth and sustainability.. To avoid these penalties, ensure that all expenses meet the new federal qualifications.

Bottom Line

The recent legislative updates offer families more flexibility in using 529 funds for K-12 education. By understanding the expanded definitions of qualified expenses and keeping an eye on state-specific tax rules, families can strategically manage educational costs and maximize tax advantages. As you plan for the future, consider these changes to make informed decisions about your child’s education funding. Always consult with a 💡 Definition:A fiduciary is a trusted advisor required to act in your best financial interest.financial advisor💡 Definition:A financial advisor helps you manage investments and plan for financial goals, enhancing your financial well-being. to tailor these options💡 Definition:Options are contracts that grant the right to buy or sell an asset at a set price, offering potential profit with limited risk. to your family’s specific needs.