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Financial Planning > College Planning > 529 Plans

Clients Can Use 529 Plans to Pay for K-12 School. But Should They?

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What You Need to Know

  • Clients seeking tax-friendly ways to fund private school costs might find this option attractive.
  • Use of these plans for K-12 school costs is more limited than for college costs, and it may affect aid eligibility.
  • Be sure to carefully examine the laws of the state where the client wishes to open a 529 plan before taking action.

It’s back-to-school time again, meaning that many clients are turning an eye toward tax-smart saving strategies to pay for the ever-increasing cost of education. Most of those clients are already familiar with Section 529 college savings accounts.

However, those clients may have overlooked a provision of the 2017 tax overhaul that allows 529 plans to be used for primary and secondary education costs. Clients who are interested in exploring tax-friendly ways to fund private elementary and high school costs might find the Section 529 plan option attractive — but should, as always, read the fine print before deciding if this savings option is best for them.

Using 529 Plans for Private School Costs: The Basics

IRC Section 529 education savings plans are funded with after-tax dollars that are permitted to grow on a tax-free basis and function much like a Roth IRA. In other words, distributions from the account are not taxed when received so long as they are used to pay qualifying higher education expenses (any gains on the account value are also received tax-free). 

Under current law, Section 529 plan funds can now be used to cover the cost of primary and secondary school tuition. Under prior law, 529 plans were postsecondary (college and university) funding mechanisms alone. Up to $10,000 per year can now be withdrawn from these accounts to cover elementary or secondary school tuition (the $10,000 limit applies on a per-student basis).

Clients should note that while 529 plan funds can be withdrawn tax-free to pay private elementary and high school costs, tuition is the only qualifying expense. Books, fees, computers and other ancillary expenses associated with elementary and high school education cannot be funded with 529 plan funds on a tax-preferred basis (note, however, that these are qualifying expenses at the college level).

Clients can contribute up to $15,000 (the annual gift tax limit) to the 529 plan — or have the option of contributing five years’ worth of contributions at a single time (in a lump sum of up to $75,000). Married couples can double these amounts.

Considerations Before Funding the 529 Plan

At least 30 states offer deductions or credits for 529 plan funds at the state level. But every state is different, so it’s important to carefully examine the laws of the state where the client wishes to open a 529 plan before jumping into anything. It’s possible that the state does not follow federal rules in this area (meaning that the funds could be taxable at the state level even when withdrawn for qualifying K-12 tuition).

Before funding a 529, it’s always important to consider the client’s specific situation. If the client is already funding private school tuition, a 529 plan could be beneficial for state-level tax breaks. Those clients will also have the ability to take advantage of tax-free gains on contributions to the 529 plan.

Some clients might know that they plan to send young children to private school. Those clients could benefit most by overfunding the 529 in early years to take advantage of multiple years’ worth of tax-free account growth. On the other hand, some clients may wish to save any 529 plan investments for college in order to maximize the number of years that the account can grow tax-free.

Clients who intend to fund a 529 plan for K-12 tuition can still use the 529 plan funds to cover the cost of postsecondary education if something changes down the line. If one child decides not to attend college, parents also have the option of transferring the 529 plan funds to another child without penalty.

Funding the 529 plan early on could affect the child’s ability to qualify for financial aid for private K-12 education, however. Under prior law, this wasn’t an issue because the funds couldn’t be used to cover those tuition costs. 


The rules for 529 plans and private school education are new and evolving. If your client is interested in taking advantage of this savings option, it’s important to research the specific state laws to ensure the client won’t be subject to unnecessary penalties down the line.


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