Can You Use a 529 for Private School?

A 529 plan is a tax-advantaged savings plan designed to help families save for future education expenses. These plans, authorized by Section 529 of the Internal Revenue Code, allow earnings to grow tax-free and withdrawals to be tax-free when used for qualified education expenses. The Tax Cuts and Jobs Act of 2017 expanded the scope of 529 plans to include K-12 private school tuition, providing families a new avenue to utilize tax-advantaged savings for elementary and secondary education costs.

Eligible K-12 Private School Expenses

For K-12 private school education, the primary expense considered qualified for 529 plan withdrawals is tuition. Federal law permits tax-free withdrawals of up to $10,000 per beneficiary per year for tuition expenses incurred at elementary or secondary public, private, or religious schools. This annual limit applies to the total amount withdrawn for K-12 tuition, even if funds come from multiple 529 accounts for the same beneficiary. Beginning in tax year 2026, this annual limit is set to increase to $20,000 per student.

While tuition is the main eligible expense, it is important to understand what is not covered for K-12 education. Expenses commonly associated with private school, such as uniforms, transportation, books, and general supplies, are not considered qualified K-12 expenses under federal guidelines. Similarly, extracurricular activities, including sports or club fees, and health insurance are not covered by 529 plans for K-12. Homeschooling expenses are also not considered qualified expenses, unless a state specifically classifies homeschooling as a form of private school.

New legislation, effective July 4, 2025, will expand the definition of qualified K-12 expenses beyond just tuition. These expanded categories will include curriculum materials, books, online educational materials, tutoring services, educational therapies for students with disabilities, fees for dual enrollment, and fees for standardized tests like the SATs and AP exams.

Making Withdrawals for Private School

The account owner is responsible for initiating withdrawals from a 529 plan. When preparing to make a withdrawal, the account owner should calculate the exact amount of qualified education expenses to ensure the withdrawal matches the expense. Over-withdrawing can lead to tax implications on the earnings portion.

There are several methods for receiving funds from a 529 plan. The funds can be sent directly to the educational institution, reimbursed to the account owner, or sent to the beneficiary. Sending payments directly to the school can simplify record-keeping. If the funds are reimbursed to the account owner, maintain meticulous records of all expenses paid out-of-pocket.

Account owners must retain detailed documentation, such as tuition statements, invoices, and receipts, to substantiate that withdrawals were used for qualified education expenses. This documentation is crucial in case the Internal Revenue Service (IRS) requests proof of qualified withdrawals. Withdrawals must be made within the same calendar year that the qualified expenses are incurred to align with tax reporting requirements.

Tax Treatment of 529 Withdrawals

The federal tax treatment of 529 withdrawals for K-12 private school tuition depends on whether the withdrawal is considered “qualified.” Qualified withdrawals, up to the annual federal limit of $10,000 per student, are tax-free at the federal level. This means that neither the principal contributions nor the investment earnings within the 529 plan are subject to federal income tax when used for eligible K-12 tuition.

Conversely, “non-qualified” withdrawals are subject to different tax rules. If a withdrawal is not used for a qualified education expense or exceeds the annual K-12 tuition limit, the earnings portion of that withdrawal becomes subject to federal income tax. Additionally, a 10% federal penalty tax applies to the earnings portion of non-qualified withdrawals. The principal portion of any withdrawal is never taxed or penalized.

State-level tax implications for 529 plans vary significantly. Many states offer income tax deductions or credits for contributions made to a 529 plan. However, not all states have conformed their tax laws to the federal expansion allowing 529 funds for K-12 tuition. In some states, using 529 funds for K-12 tuition may be considered a non-qualified expense for state tax purposes, potentially leading to state income taxes on earnings or even the recapture of previously claimed state tax deductions or credits. Therefore, account owners should understand their specific state’s rules regarding K-12 withdrawals to avoid unexpected tax consequences.