Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / Using 529 Plans for Homeschooling Expenses
Transcript
- Lucas: Alright Luna, today I want to talk about a 529 plan use that a lot of people don't realize is on the table — covering homeschooling expenses. Luna: Huh, I honestly thought 529s were pretty much just for college, trade school, and K-12 private tuition. Homeschooling too? Lucas: It's a lesser known provision. Under the Tax Cuts and Jobs Act of 2017, 529 plans expanded to allow up to ten thousand dollars per year per beneficiary for K-12 tuition at public, private, or religious schools. But the IRS also clarified that expenses for homeschooling can qualify — with some important caveats. Luna: Okay, so what counts? I imagine it's not just buying a whiteboard and some markers. Lucas: Right. The key is that the expenses must be for the student's primary or secondary education. That means curriculum and instructional materials — like textbooks, workbooks, online courses, even educational software or apps — are qualified. Also tutoring fees if the tutor is providing instruction directly related to the homeschool curriculum. Luna: So if I'm homeschooling my kid and I pay for an online math program like Khan Academy Kids or a live tutor on Wyzant, that could be a qualified withdrawal? Lucas: Exactly, as long as the tutor or program is part of the student's primary education. The IRS has been pretty clear that the expense must be for the student's educational benefit and not just for general family enrichment. So a family membership to a museum probably wouldn't qualify unless it's directly tied to a course of study. Luna: That makes sense. What about things like computers or internet access? Lucas: Those are trickier. The IRS has not issued explicit guidance on technology hardware. Generally, if the computer is used primarily for educational purposes, it might qualify, but I'd advise families to be conservative. Some states have their own rules that are more restrictive than federal law. For example, California originally didn't allow K-12 expenses at all, though they've since aligned with federal rules. Luna: So it's really state dependent. That's a big point for families considering this. Lucas: Absolutely. And the homeschooling community is sizable. According to the Home School Legal Defense Association, as of 2024 there were about 3.7 million homeschooled students in the U.S., which is up about 30 percent since 2019. So this is a growing demographic, and many of those families are paying out of pocket for curriculum and tutoring. Luna: Three point seven million — that's a lot of families who could potentially be using 529 plans more strategically. Lucas: Exactly. And the tax benefits are meaningful. Contributions to 529 plans grow tax-deferred, and withdrawals for qualified expenses are federal tax-free. Many states also offer a state income tax deduction or credit for contributions. So if you're a homeschooling family in a state like New York or Illinois that offers a deduction, you could be getting a double benefit. Luna: Let's get concrete. Do you have an example of a family actually using a 529 for homeschooling? Lucas: I do. I spoke with a listener named Sarah from Austin, Texas. She's been homeschooling her two children for three years. She opened a 529 plan through the Texas Tuition Promise Fund, which is a prepaid tuition plan, but she also has a regular savings plan with Vanguard. Last year she used about six thousand dollars from the savings plan to pay for an online math curriculum called Beast Academy and a weekly tutor for her older child. Luna: And she had no issues with the IRS? Lucas: She kept meticulous records — receipts, invoices, a log of what each expense was for. That's the critical advice: document everything. The IRS could ask for proof that the expense was qualified, especially if you're audited. Sarah also made sure the tutor was a certified teacher, which strengthens the case that it's educational. Luna: That's smart. I think a lot of people might assume that since they're homeschooling, they can just use the 529 like a second checking account. But it's not that loose. Lucas: No, it's not. And there's another layer: the ten thousand dollar annual limit for K-12 tuition applies per beneficiary per year. But for homeschooling, the IRS hasn't set a separate dollar cap — the qualified expenses just have to be reasonable and necessary for the student's education. However, some states do impose their own limits, so you have to check. Luna: So the federal limit is per beneficiary, not per family. That matters if you have multiple kids. Lucas: Right. If you have three homeschooled children, you can withdraw up to ten thousand per child per year for qualified expenses. That's up to thirty thousand dollars annually, tax-free, if all your expenses are legit. For a family spending heavily on curriculum, tutors, and maybe co-op fees, that could be a huge help. Luna: Co-op fees — that's a good one. Can those count? Lucas: It depends. If the co-op is providing direct instruction in core subjects like math, science, or language arts, then yes. But if it's more of a social group or field trip club, probably not. Again, the key is the educational nature of the expense. Luna: What about standardized test fees? Like if a homeschooler takes the SAT or ACT? Lucas: Those are generally qualified as part of college admissions testing, which falls under secondary education. Similarly, AP exam fees can be covered. And if you're paying for a test prep course — that can qualify too, as long as it's part of the student's primary or secondary education. Luna: That opens up a lot of possibilities. Are there any pending changes to the rules? Lucas: Yes, actually. In early 2026, there was a proposed rule change from the Department of Treasury that would explicitly include home education technology — things like laptops, educational software, and internet connectivity — as qualified expenses. It hasn't been finalized yet, but it's a sign that the government is recognizing the growing role of homeschooling. Luna: So if that passes, it would be a game changer for families who currently have to pay for those items with after-tax dollars. Lucas: Exactly. And it would align the rules more closely with how many families actually homeschool — which often involves a lot of digital resources. Luna: Before we go on, Lucas, I want to circle back to something you said about record keeping. For families listening who might be considering this, what's the one piece of advice you'd give? Lucas: Keep a dedicated folder — physical or digital — for every 529 withdrawal related to homeschooling. Include a receipt, a description of how it qualifies, and if possible, a copy of your homeschool curriculum plan or state notice of intent to homeschool. That way, if the IRS ever questions a withdrawal, you have a clear paper trail. Luna: That's solid. And it reminds me — we should mention that listener support is what keeps this show ad-free and independent. If our conversations about 529 rules have helped you think about your family's education funding differently, you can support the show at buy me a coffee dot com slash fexingo. It's a simple way to help us keep producing episodes like this one. Lucas: Yeah, absolutely. We appreciate every bit of support — it lets us dive into these niche topics without any commercial pressure. Luna: So back to homeschooling — you mentioned state differences. Can you walk us through a couple of examples? Lucas: Sure. Let's take Pennsylvania. Pennsylvania offers a state income tax deduction for 529 contributions up to a certain limit per beneficiary, and it follows federal rules for qualified withdrawals. So homeschooling expenses that qualify federally would also be fine at the state level. But in Pennsylvania, homeschoolers are also required to submit a portfolio of work and a log of educational activities. That portfolio isn't a qualified 529 expense, but the curriculum you use to create it is. Luna: So the state's homeschool regulations don't directly affect the 529 rules, but the documentation can overlap. Lucas: Exactly. Now compare that to a state like New Jersey, which doesn't offer a state income tax deduction for 529 contributions at all, but also doesn't have any additional restrictions on qualified withdrawals beyond federal law. So homeschooling families in New Jersey can still use their 529 plans for the same expenses, they just don't get the upfront tax break. Luna: That's a meaningful difference. For a family in a high tax state like New York, the deduction could be worth hundreds of dollars a year. Lucas: Right. New York offers a deduction of up to five thousand dollars per beneficiary per year for married couples filing jointly. So if you contribute five thousand and then withdraw it later for homeschooling, you effectively get a state tax benefit on that money. It's a nice loop. Luna: One concern I've heard from parents: what if they start homeschooling but then later the child goes back to traditional school? Can the 529 be used for both? Lucas: Absolutely. The 529 plan is flexible. You can use it for K-12 tuition at a private school, then for college, and even for homeschooling in between. The key is that the beneficiary remains the same. You don't have to choose one path upfront. That's one of the great features of 529s — they adapt to changing circumstances. Luna: And if the child doesn't use all the funds, you can change the beneficiary to another family member. Lucas: Exactly. Or, as we've discussed in previous episodes, you can now roll over up to thirty five thousand dollars from a 529 to a Roth IRA for the beneficiary, starting in 2024. So even if the child doesn't pursue higher education, the money isn't wasted. Luna: That's a nice safety net. So for the homeschooling family listening today, what's the one action step? Lucas: First, check your state's 529 plan rules for homeschooling. Some states have explicit lists of qualified expenses. Then, start a record-keeping system now, even before you make a withdrawal. And consider contributing to your 529 plan if you haven't already — you might get a state tax benefit on the way in, and you'll have tax-free growth for future homeschooling costs. Luna: Great advice. Thanks Lucas. That's a wrap for today's episode. Lucas: Thanks for listening, everyone. We'll be back next time with another angle on education funding.