Using A 529 Plan For High School: What Parents Need To Know

Private school education remains out of reach for most American families, with tuition averaging $12,356 annually for elementary and secondary institutions during the 2022-2023 school year. Only 9% of K-12 students attend private schools, according to the National Center for Education Statistics. But here’s the good news: if you’ve been setting aside funds in a 529 plan for your child’s college education, you can actually tap into those savings earlier—to pay for private high school and lower-level grades.

Can 529 Be Used For High School Tuition?

The answer is yes, but with important limitations. Following the Tax Cuts and Jobs Act of 2017, parents gained the ability to withdraw up to $10,000 per year from a 529 account to cover private K-12 tuition, including high school expenses. This federal change opened new possibilities for families juggling multiple education costs.

However, there’s a critical catch: not all states honor this federal expansion. California and Nebraska, for instance, impose state income taxes and additional penalties on 529 withdrawals used for private education. California’s ScholarShare 529 users face not only state income taxes but also an extra 2.5% tax on K-12 withdrawals. Similarly, Nebraska treats such withdrawals as non-qualified expenses subject to state taxation.

Before you access your 529 funds for high school tuition, verify your state’s specific rules. The regulations vary significantly, and withdrawing in a state that doesn’t recognize K-12 tuition as a qualifying expense could trigger unexpected tax bills.

What Is A 529 Plan?

A 529 plan is a tax-advantaged, state-sponsored savings vehicle designed for future educational expenses. Two structures exist:

Prepaid tuition plans lock in today’s tuition rates at participating colleges and universities, allowing your contributions to grow as education costs rise. College savings plans function as investment accounts covering qualified education expenses at eligible institutions nationwide.

The tax benefits are substantial. Your money grows federally tax-deferred, meaning investment income and capital gains compound without annual taxation. Withdrawals for eligible education expenses remain entirely tax-free.

On the contribution side, 529 gifts have limits. As of 2023, individuals can contribute up to $17,000 annually per beneficiary without filing gift tax returns. Married couples can gift $34,000 per beneficiary yearly. These figures include all gifts to that beneficiary, not just 529 contributions.

Smart Scenarios For Using 529 Funds On High School

Withdrawing $10,000 annually for private school tuition sounds appealing, but premature withdrawals risk depleting your college fund. Consider accessing your 529 for high school in these specific situations:

Substantial accumulated balances: If you and your extended family have consistently contributed to your child’s 529 over many years, the account may contain enough to cover both private school tuition and future college costs without shortfall.

Significant financial aid eligibility: Gifted students, talented athletes, and academically exceptional children often qualify for substantial scholarships and grants. If your child receives full or near-full ride awards for college, the 529 balance becomes less critical for higher education, making it prudent to apply toward private school expenses instead.

Alternative education paths: Not every child attends college. If your child plans to pursue entrepreneurship, trade school, or vocational training, redirecting 529 funds to private high school education ensures their K-12 educational goals are met while preserving flexibility for other objectives.

How To Execute A 529 Withdrawal For High School Tuition

Ready to move forward? Follow these three essential steps:

Step one: Review your state’s regulations. Visit your state’s education agency website and contact your 529 plan administrator to confirm whether K-12 tuition qualifies for penalty-free withdrawals in your jurisdiction. This determines your actual tax liability.

Step two: Explore all financial aid opportunities. Contact the private school’s financial aid office directly. Discuss available scholarships, tuition assistance programs, and institutional grants. Many families discover they’re eligible for aid they didn’t know existed, potentially reducing the withdrawal amount needed.

Step three: Submit your withdrawal request. Once you’ve calculated your responsibility, initiate the withdrawal through your plan’s online portal or by contacting the plan administrator. Most providers allow funds to be sent directly to the school, to you, or to your child as the beneficiary.

Tax implications accompany 529 withdrawals, even for qualifying education expenses. Consulting a tax professional before processing your request provides clarity on your specific situation and helps avoid surprises at tax time.

What About Homeschooling?

Current regulations don’t permit 529 withdrawals for homeschool expenses. Any funds withdrawn for homeschooling are treated as non-qualified distributions and face income taxes plus a 10% penalty on earnings. This restriction remains unchanged despite the broader 529 expansion for private K-12 schools.

Key Takeaway: Yes, you can use 529 funds for high school tuition up to $10,000 annually, but verify your state’s position first, ensure your college fund won’t be compromised, and explore all alternative aid sources before tapping your education savings account.