Can homeschoolers use 529 plans? Maybe!

There may be a way for homeschoolers to use their 529 savings accounts for some K-12 expenses.

Congress decided to expand 529 savings plans to be used for K-12 expenses in the Tax Cut and Jobs Act or 2017. 529 plans were originally set up to save for college. The earnings on the savings is tax free. But they specifically excluded homeschool expenses from using 529 funds.

That seemed unfair to a lot of homeschoolers.

But there may be a way for homeschoolers to use their 529 savings accounts for some K-12 expenses.

The Tax Cut and Jobs Act or 2017 says this:

the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”. (emphasis added)

There are 2 conditions for you to use 529 funds for K-12 expenses:

1) the costs must be for tuition and

2) the institution the family pays must be “a public, private, or religious school”

Some homeschool students take classes from private schools (locally or online). The tuition payments to these schools can use 529 funds.

But the cost of books, supplies, equipment, and payments to organizations that are not schools cannot use 529 funds.

Be careful that the tuition payments are going to a public, private, or religious school. In my experience most homeschool programs (co-ops, tutorials, etc) are NOT schools.

Homeschool parents should check with the program that they are paying tuition to to determine if it is a school according to their state’s definition.

If you have any concern about their status as a school, then do not use 529 funds to pay for the tuition. Withdrawals from a 529 fund that are not “qualified” (i.e. tuition paid to a public, private, or religious school) then you pay income tax and a penalty of 10% on the withdrawn earnings. Ouch!

Carol Topp, CPA

2 Comments

  1. The income tax and penalty is only on the portion of the funds that was interest earned, not on the principal since that was post-tax.

  2. Thank you for the clarification. I edited the post to be more clear that the tax and penalties are on the earnings, not the full withdrawal.

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