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A 529 college savings plan (or simply a 529) is a popular way to help pay for college. But it can also be used for private school to help cover the cost of tuition.
There are rules and restrictions about 529 plans for private school use, and where you live can make a difference. If you’re considering private education for your child, here’s what you should know about 529 plans.
Key Points
• 529 college savings plans can help pay for K-12 private school tuition, but withdrawals are limited to $20,000 per year.
• State tax rules vary, and some states may tax 529 withdrawals used for private school tuition.
• 529 college savings plans offer tax advantages, including tax-free growth and withdrawals for qualified education expenses.
• Using a 529 for private school may reduce the amount of savings available for future college costs.
• Before making a withdrawal, check your state’s rules and consider speaking to a tax professional.
Saving for Private School Tuition
The cost of private school is substantial: The average K-12 tuition is $12,790 a year, according to the Education Data Initiative.
A 529 college savings plan is an investment account that’s designed to help families pay for a student’s education expenses. Although a 529 plan is primarily meant to be used for college expenses, up to $20,000 from a 529 can be applied to K-12 private school tuition, as long as your state considers it a qualifying expense. This is one of the many 529 plan benefits that families can take advantage of.
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When to Establish a 529 Plan for Private Education
If you’re expecting your child to go to college, you may want to open a 529 college savings plan for them. Parents, relatives, and friends can all make contributions to the plan. 529 plans can help students pay for college tuition and related qualifying expenses so they won’t need to take out as much in federal and private student loans.
One of the advantages of 529 plan is that money in the account can grow over time, especially if you open it when your child is young. As of June 2024, the national average account balance for 529 savings plans was $30,295, according to the Education Data Initiative.
Another perk of a 529 plan is the tax benefits that come with it. There is no federal income tax on earnings and qualified withdrawals from the plan. In addition, your state might also offer income tax benefits on contributions to a 529.
However, using a 529 college savings plan for private school means you may end up depleting some of the funds that would otherwise go toward your child’s college expenses, so it’s wise to be strategic about this option. For example, if your oldest child decides they don’t want to go to college after all and they’re currently in private school, you could use the 529 account to help cover their private school cost. Or if you’re at risk of overfunding the account beyond your state’s 529 contribution limits, using some of the money in the 529 for private school can make sense.
If you use a 529 for private school, and your child then has less money for college costs, there are financial aid options that can help. You can explore scholarships and grants as well as federal and private student loans.
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How to Use a 529 Plan for Private School
There are rules about using a 529 to fund a child’s private school tuition. Make sure you understand the following.
State Eligibility Restrictions
Your ability to use a 529 tax-free for private school depends on the state you live in. Not all states consider elementary and secondary private school tuition as a qualifying education expense. If your state treats private school tuition as a non-qualifying expense, you might face additional tax on any withdrawals you make.
States that don’t consider distributions for private school as a qualifying expense include California, Nebraska, and New York, to name a few. Check the rules for your state.
529 Plan Qualified Expenses
When 529 withdrawals are used for college costs, the list of qualified expenses (meaning those that don’t incur taxes or penalties) is broad. Tuition and fees, textbooks, school computers, lab equipment, and room and board are all considered qualifying college expenses by the IRS. But for private schools, qualified expenses are restricted to tuition fees only.
Tax Considerations
A 529 college savings plan is a federal tax-advantaged savings vehicle. Earnings grow tax-free, and 529 distributions up to $20,000 annually for private school tuition aren’t taxed.
However, non-qualified withdrawals, such as using 529 college savings funds to pay for private school uniforms or taking out more than the $20,000 limit for tuition, are subject to federal income taxes and might incur other 529 plan penalties.
Some states offer tax deductions or credits on 529 college savings contribution amounts, but a number of states don’t. California, for example, doesn’t consider private school tuition a qualifying 529 expense. The earnings portion of a 529 college savings plan withdrawal used for private school is subject to California income tax, and an additional 2.5% tax applies.
To be eligible for contribution-related tax benefits in certain states, you must have opened the state-sponsored 529 college savings plan. If you opened an out-of-state 529 college savings plan, you might not be able to claim your state’s 529 tax perks.
529 Withdrawal Checklist to Pay for Private School
Before using 529 college savings to pay for K-12 private school tuition, take the following steps.
1. Verify Your State’s Rules
It’s important to understand your state’s rules and restrictions regarding 529 college savings withdrawals for private school tuition. For example, you may need an in-state plan to qualify for tax benefits.
Also, find out if your state treats private school tuition as a qualifying expense for tax deductions or not.
2. Discuss the Withdrawal With a Tax Professional
Speak to a trusted tax professional to review how using 529 plan for private school might impact your taxes. They can offer guidance based on your specific financial situation and state’s rules, so you’re not caught off-guard with a greater tax liability than you expected.
3. Initiate a 529 Withdrawal
Some 529 plans let you request a withdrawal online. Others might require you to contact the plan’s administrator to start the withdrawal process. Typically, the funds can be sent directly to your child’s private school, but there may be an option to send them to the account owner.
The Takeaway
A 529 college savings plan allows you to invest in your child’s education. While these plans are a popular way to help save for college, you can use 529 college savings to help pay for your child’s K-12 private school education with certain caveats. The funds can only be used for private school tuition, and no more than $20,000 can be withdrawn tax-free. Some states don’t consider private school tuition as a qualifying expense, which could result in an added tax liability on your state tax return. Double-check your state’s 529 college savings rules.
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FAQ
Can you use a 529 to pay for private K-12 and college education?
A 529 college savings plan can generally be used for private schools, including religious K-12 schools. Up to $20,000 of your 529 savings can be used toward K-12 tuition each year.
Can you use a 529 plan to pay private student loans?
Yes, you can use a 529 college savings plan to repay private student loans. However, a lifetime cap of $20,000 of qualified student loan repayments can be repaid using 529 funds.
Can 529 plans only be used at in-state schools?
You can use a 529 college savings plan for private school tuition as long as the institution is an accredited private college, university, trade school, graduate school, or professional school.
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