Advertisement
529 Plans

Raid the College Fund to Pay for K-12 Tuition?

Before you start using your 529 plan to pay private-school tuition, check with your state’s plan.

Until recently, 529 college-savings plans offered tax-free withdrawals only when the money was used for qualified college education expenses. But under the federal tax overhaul enacted at the end of 2017, parents can withdraw up to $10,000 tax-free from a 529 plan each year to pay for private-school tuition for kindergarten through 12th grade.

Before you start using your 529 plan to pay private-school tuition, check with your state’s plan. Although most states conform with federal law, a few, including Illinois, New York and Oregon, have different rules that could result in unexpected taxes and penalties. They typically charge state income tax on the earnings portion of the distribution and require families to return state tax deductions or credits received for contributions.

Advertisement - Article continues below

There are other reasons to think twice about using your 529 plan for precollege expenses. College savings plans work best when your investments have plenty of time to grow. Plus, tapping the account for precollege expenses could leave you with a shortfall for college. Families planning to use 529 funds for K–12 should consider opening a separate 529 account for that purpose. This allows you to track K–12 and college savings separately and pick investment portfolios that match your needs for each.

Advertisement

Most Popular

HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

Find the Best Money Market for You
money market accounts

Find the Best Money Market for You

Whether you choose a money market fund or account largely depends on the money's purpose.
June 24, 2020
Thinking of Buying a Fixed Annuity? Ask These Questions First
retirement

Thinking of Buying a Fixed Annuity? Ask These Questions First

Of all the types of annuities out there, a fixed annuity is the one that's most straightforward. Is it the one that's right for you?
June 8, 2020
A View of Life After the Pandemic
savings

A View of Life After the Pandemic

Among the forecasts: The work-from-home trend will last, and we’ll welcome more robots.
June 5, 2020
Lessons for Kids From the Crisis
savings

Lessons for Kids From the Crisis

One of the greatest opportunities presented by the pandemic is to give children an appreciation for the workings of the economy.
June 5, 2020