Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / How 529 Plans Can Cover Your Child's K-12 Tuition
Transcript
- Lucas: So, Luna, when most people think about 529 plans, they think college. But the Tax Cuts and Jobs Act of 2017 quietly added a huge feature: you can now use up to ten thousand dollars per year, per child, for K-12 tuition at public, private, or religious schools. Luna: Right — and that's a game-changer for a lot of families. But I think a lot of people still don't know about it. Lucas: Exactly. The act took effect in 2018, and since then, parents have been able to pull money out of a 529 plan — federally tax-free — to cover elementary and secondary school tuition. That's kindergarten through 12th grade. Luna: But there's a cap. Ten thousand per year, per beneficiary. So if you have two kids, you could use up to twenty thousand total. Lucas: Right. And it's important to note: that's per child, not per account. So if you have one 529 plan with multiple beneficiaries, you need to track withdrawals carefully. Luna: Let's talk about why this matters. Private school tuition can be a significant expense. In 2025, the average private elementary school tuition in the U.S. was around eleven thousand dollars per year. So the ten thousand dollar limit actually covers most of it. Lucas: Yeah — and that's before state tax benefits. Over thirty states offer a state income tax deduction or credit for 529 contributions. So if you live in a state like Ohio, you can deduct up to four thousand dollars per beneficiary per year from your state income tax. Then you turn around and use that money for K-12 tuition. Luna: So you're getting a tax break on the way in, and tax-free growth and withdrawals on the way out. That's a double benefit. Lucas: Exactly. And the earnings grow tax-free as long as you use the funds for qualified expenses. K-12 tuition is now a qualified expense under federal law. But — and this is a big but — not every state conforms to the federal rule. Luna: Right. So even though the federal government allows K-12 withdrawals, your state might still treat them as non-qualified. That could trigger a state tax recapture on the earnings. Lucas: Yes. For example, California and New Jersey initially did not conform. As of 2026, most states do, but you need to check. If your state doesn't conform, then using the 529 for K-12 might mean you have to pay state income tax on the earnings portion of the withdrawal. Luna: And also, if you took a state tax deduction on your contributions, you might have to recapture that deduction — basically pay it back. Lucas: That's the risk. So the first step: confirm your state's rules. The savingforcollege dot com website has a good state-by-state summary. Luna: And one more thing: the ten thousand dollar limit is per beneficiary, per year. So if you have a child in private school from kindergarten through 12th grade, that's thirteen years. You could use up to one hundred thirty thousand dollars in total over that span. Lucas: But you have to plan. Because that money won't be available for college later. So it's a trade-off. If you use ten thousand per year for K-12, that's one hundred thirty thousand less for college. Depending on your overall savings, that might be fine — or it might leave a gap. Luna: And on that note, what about financial aid? 529 plans are considered parental assets for FAFSA purposes. They count at a maximum rate of 5.64 percent. So using the money for K-12 reduces the account balance, which could actually improve aid eligibility. Lucas: That's a nuanced point. If you have a large 529 balance, it can reduce need-based aid. By spending it down on K-12 tuition, you lower that asset — but you also have less for college. So you have to weigh the aid benefit against the actual college costs. Luna: And keep in mind that the FAFSA simplified formula changed a few years ago. The treatment of 529 plans is still the same — they're parental assets — but the overall formula is different. Lucas: Right. And one more strategic angle: if you're planning to use a 529 for both K-12 and college, you might want to open two accounts per child. One for K-12 withdrawals, one for college. That way you can track the usage separately and avoid commingling funds. Luna: That's a smart practical tip. Also, remember that the 10,000 limit applies per beneficiary, not per account. So if you have multiple 529 accounts for the same child, the total K-12 withdrawals across all accounts can't exceed 10,000 per year. Lucas: Exactly. Now, let's talk about an example. Say you live in Ohio, you have a 7-year-old in private school, tuition is twelve thousand a year. You can use ten thousand from the 529, and pay the remaining two thousand out of pocket. The ten thousand comes out tax-free federally. You also get the Ohio state tax deduction on contributions — up to four thousand per beneficiary. Luna: But you have to have contributed at least ten thousand to the 529 in order to withdraw that much. You can't contribute and withdraw in the same year for the same expense — well, actually you can, but there may be state rules about it. Lucas: Right. And the withdrawal needs to be in the same calendar year as the tuition payment. So if you pay tuition in August 2026, you need to take the 529 withdrawal in 2026. Luna: And make sure you get a receipt or tuition statement from the school. The IRS could ask for documentation showing the withdrawal was used for qualified expenses. Lucas: Absolutely. So the key takeaway: 529 plans for K-12 are a powerful tool, but they require careful planning. You need to check state conformity, understand the ten thousand dollar limit, and think about the long-term impact on college savings. Luna: And if your state offers a tax deduction for contributions, it's even more attractive. But don't forget: you can't double-dip. You can't take the deduction on contributions and then also deduct the tuition on your federal return. Lucas: Right. The tuition is paid with after-tax money if you use a 529, because the contributions are after-tax. And the earnings are tax-free. So it's still a good deal. Luna: One last thing: if you have a Coverdell ESA, you can also use that for K-12 tuition, but the contribution limit is only two thousand per year. The 529 is much more flexible for this purpose. Lucas: Exactly. So if you're a parent considering private school, a 529 plan is worth exploring. Just do your homework on state rules and your own savings goals. Luna: And if you've already been using a 529 for college, you can start using it for K-12 now. It's a retroactive benefit — the law has been in place since 2018. Lucas: Good point. So whether you're planning ahead or already have a child in school, it's worth looking into. Next episode, we'll talk about how 529 plans can cover computer and technology costs — like laptops and software. Luna: Looking forward to it. For now, if you have questions about using your 529 for K-12, drop us a note.