Can a 529 Be Used for High School?
Federal law allows 529 plans for K-12 tuition, but state tax treatment and narrow expense definitions create important financial considerations for account owners.
A 529 plan is a tax-advantaged savings account designed to help families save for education costs. Sponsored by states or educational institutions, contributions are made with after-tax dollars, and investment growth is not subject to federal income tax. While historically used for post-secondary education, recent law changes have expanded their use. For higher education, qualified expenses include tuition, fees, room and board, books, and computers.
Qualified K-12 Tuition Expenses
The Tax Cuts and Jobs Act of 2017 allows families to use 529 plans for K-12 expenses. You can withdraw up to $10,000 per year, per beneficiary, for tuition at an eligible public, private, or religious school. This limit is applied per student, so total annual withdrawals for one student from all 529 plans cannot exceed $10,000. This allows funds that might have been exclusively earmarked for college to be applied toward immediate private school tuition needs.
For K-12 purposes, “tuition” is narrowly defined as the cost of enrollment or attendance. Other common school costs are not qualified expenses under the federal rule. Excluded expenses include:
- Homeschooling costs
- Room and board
- School uniforms and transportation
- Fees for extracurricular activities
- Computers, software, and other supplies
Other Qualified Uses and Rollovers
The flexibility of 529 plans also allows funds to pay for other expenses. Up to a lifetime limit of $10,000 can be used to pay principal and interest on a beneficiary’s qualified student loans. Assets can also pay for fees, books, supplies, and equipment for registered apprenticeship programs.
A recent change allows for tax- and penalty-free rollovers from a 529 plan to a Roth IRA for the beneficiary. This is permitted if the 529 account has been open for at least 15 years. These rollovers are subject to annual Roth IRA contribution limits and have a lifetime maximum of $35,000.
State Tax Implications
While the federal government permits tax-free withdrawals for K-12 tuition, state-level tax treatment is not uniform. Not all states have aligned their rules with the federal changes, creating different scenarios for taxpayers depending on their location.
Many states have conformed to the federal law, allowing the $10,000 withdrawal for K-12 tuition to be free from state income tax. In these conforming states, the distribution receives the same favorable tax treatment it gets from the IRS.
Conversely, a number of states do not consider K-12 tuition a qualified expense. In these non-conforming states, taking a withdrawal for this purpose can have negative tax implications, as the earnings portion may be subject to state income tax and an additional penalty.
Furthermore, if you received a state income tax deduction for your contribution, the state may “recapture” the prior tax benefit. This would require you to pay back the tax savings you previously received on that contribution.
Making a Qualified Withdrawal
There are two primary methods for accessing 529 funds for qualified tuition. You can request that the plan administrator pay the school directly. Alternatively, you can pay the bill yourself and then request a reimbursement from the 529 plan.
Regardless of the payment method, the account owner is responsible for proving the withdrawal was used for a qualified education expense. This documentation is necessary to substantiate the tax-free nature of the distribution to both the IRS and state tax authorities.
You should retain all relevant documents, such as tuition invoices from the school, canceled checks, and bank or credit card statements showing the payment. Keeping these records accessible is important if you are ever required to verify the funds were used appropriately.