Using 529 plans for K-12 and higher education

529 Education Savings Plan rules allow for up to $10,000 per year/per student to be applied toward private elementary or secondary school tuition expenses, making a 529 plan for K-12 a flexible option. Note that the only qualified expense that is stated in the rules is “tuition.”

As an example of how to use a 529 plan to pay for K-12 tuition, let’s say you open a 529 plan when your child is born. You make an initial deposit of $15,000 and monthly contributions of $396 through 12th grade. Assuming annual tuition costs of $10,000, a 5.5% school cost inflation rate and a 529 plan rate of return of 7.7%, your 529 plan would help cover 54% of your child’s total private K-12 tuition costs.

States that allow 529 plans for K-12

One caveat to applying distributions towards K-12 education expenses is that not all states follow the federal law.

If you withdraw funds for K-12 use and live in a state that doesn’t consider K-12 tuition a qualifying expense, you could be subject to state tax penalties or your ability to claim credits and/or deductions could be affected. You may also trigger a 10% penalty on non-qualified withdrawals.

Eligible K-12 schools for 529 plans

If you live in a state that follows the federal law, you can withdraw up to $10,000 per year/per student if they’re enrolled at a K-12 private or religious elementary or secondary school.

529 plan rules for K-12 education expenses

Other than the $10,000/year withdrawal limit for K-12 tuition expense, all other 529 plan rules apply:

• Your annual contributions to a 529 plan are not tax deductible at a federal level.
• K-12 tuition withdrawals beyond $10,000, or withdrawals used for non-qualifying expenses, are subject to income tax and a 10% penalty.
• If contributions or any additional funds gifted toward a 529 plan exceed $19,000 ($38,000 for married couples filing jointly), which is the 2025 IRS gift tax exclusion, the surplus would be subject to the federal gift tax.
• As an option, you can choose to contribute a lump sum of up to $95,000 (or $190,000 for joint contribution) in 2025 and elect to have the contribution considered “spread” over five years. This essentially allows you to use five years of annual gift exclusions in one year. This larger gift wouldn’t be subject to the gift tax if the person who made the gift lives for the full five years. This feature can be an effective strategy for long-term estate and gift planning, as the larger upfront gift helps to remove those assets from the donor’s estate and maximize compound growth inside the 529 plan.

Open a separate 529 account for K-12 and higher education

When planning, keep in mind the separate costs and different timelines for K-12 and college expenses.

As you start off your savings, determine the total amount you’ll need to cover for both K-12 tuition and college expenses. Match your investments within the 529 plan to the time horizon for withdrawals for both, as the earlier K-12 expenses and the later college expenses will have different timelines.

If your contributions only consider the time horizon of college, your early withdrawals for K-12 tuition could possibly negate the growth potential of the contributions that are earmarked for later college expenses.

To simplify the investing and saving process, it may help to have a 529 plan dedicated for K-12 tuition and a separate one for college expenses. There are no limits to the number of 529 plans you can set up but be sure to review the costs and expenses associated with setting up multiple accounts.

529 plans as part of your overall financial planning

As you’re determining which options are best for your children’s education needs, consider how using a 529 plan for K-12 expenses may fit into your financial plans. Consult with a financial advisor to discuss strategies that will be most advantageous in meeting your goals over the long-term.

Learn how we can help you plan for your children’s education.

For more information regarding college savings plans, please visit www.collegesavings.org. Participation in a 529 plan does not guarantee the investment return on contributions, if any, will be adequate to cover future tuition and other higher education expenses. Before investing in a 529 College Savings Plan, consider your state of residence, which may offer a 529 College Savings Plan with state tax or other benefits available only to residents of the state. Federal income tax on the earnings and a 10 percent penalty on distributions for non-qualified expenses may apply.