Can You Use a 529 Plan for Private School for 2025?

by Alex Hillsberg , MA

Student Finance & Loan Expert

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Are you considering private school for your child's education?  A 529 plan can be a powerful tool to help you save and manage those costs. But can you really use a plan traditionally designed for college to pay for private school tuition? 

This guide dives into everything you need to know:  Unlocking tax benefits, understanding limitations, and navigating the best strategies for using a 529 plan to afford your child's private school dream.  Let me assist you in exploring how a 529 plan can be used for a private school.

What You Should Know About Using a 529 Plan for Private Schools for 2025

• You can withdraw funds tax-free to cover qualified tuition expenses at an eligible private elementary or secondary school, but there is a limit of  $10,000 per beneficiary, per year. Any amount used beyond that or for non-qualified expenses will be taxed on the earnings portion and incur a 10% penalty.
• You can use the same 529 plan for both private school tuition and future college expenses. Additionally, 529 plans offer various investment options, allowing your savings to grow.
• Some states offer tax deductions or credits for contributions made to their in-state 529 plans. However, these state tax benefits and overall contribution limits can vary depending on your location.

Table of Contents 

1. Can you use a 529 plan for private school for 2025?
2. What is a 529 plan, and how does it work?
3. Are there any tax benefits for using a 529 plan for private school?
4. What are the qualified expenses for a 529 plan when used for private school?
5. Can I use the same 529 plan for both private school and college expenses?
6. What are the key factors to consider when choosing a 529 plan for private school?
7. Are there any state-specific rules for using a 529 plan for private school?
8. Is a 529 Plan Suitable for Funding an Accelerated Bachelor Degree Online?
9. Is it better to choose a state-sponsored plan or a national plan for private school savings?
10. How does a 529 plan compare to other financial strategies for private school savings?
11. What are the fees and administrative costs that could affect my 529 plan returns?
12. How do 529 plans fit into a broader educational financial plan?
13. What role can online education play in a 529 plan strategy?
14. How can I adjust my 529 plan strategy to evolving market conditions and emerging educational options?
15. What are the potential risks of relying solely on a 529 plan for private school tuition?
16. Can alternative educational credentials complement a 529 plan strategy?
17. What if my child's educational plans change unexpectedly?
18. Can 529 plans be effectively combined with other funding sources for non-tuition expenses?
19. Other Things You Should Know About Using a 529 Plan for Private School

Can you use a 529 plan for private school for 2025?

A 529 plan, also known as a Qualified Tuition Program, is a tax-advantaged investment account designed specifically for education savings in the United States. In 2021, 63% of parents have savings for college of which 29% are 529 plans.

You can use a 529 plan for private school tuition, as initiated by the Tax Cuts and Jobs Act of 2017. However, there are some limitations to keep in mind:

• Maximum withdrawal per year: You can use up to $10,000 per year, per beneficiary, towards qualified tuition expenses at a private elementary or secondary school.
• Tuition is the only qualified expense: If you will be using 529 plan for private school, only tuition is considered a qualified expense. You cannot use a 529 plan to pay for other costs like uniforms, books, or extracurricular activities.
• Tax penalties: Withdrawals used for qualified K-12 expenses are generally tax-free, but any earnings used for non-qualified expenses are subject to income tax and a 10% penalty.

Here’s What 529 Plan Holders Have to Say About Using Their 529 Plan for a Private School

We knew private school was an investment, but the thought of those annual tuitions was daunting.  A 529 plan became our secret weapon!  Seeing our contributions grow with tax-free benefits gave us immense peace of mind. Now, Sarah can experience the enriching environment we always dreamed of for her, and we're so grateful for the financial support the 529 plan provided. -Lisa

Juggling work and saving for our twins' education was a constant challenge.  Using a 529 plan for their private school tuition was a game-changer.  The flexibility of the plan allowed us to contribute smaller amounts consistently, and knowing those contributions were growing tax-free kept us motivated.  It feels amazing to see them thrive in their classes, and the 529 plan definitely helped make it possible. -David

My daughter has always had a passion for science, and a private school with advanced programs felt like the perfect fit.  Thanks to our 529 plan, we could afford the extra costs without compromising on her education.  It's an incredible feeling to see her blossom in such a supportive environment, and the 529 plan definitely played a key role in making that happen.  We're so happy we started saving early! -Jessica

What is a 529 plan, and how does it work?

You can open a 529 plan through a state-sponsored program, a national plan offered by a financial institution, or even some advisor-directed options. Each plan has its own investment options and fees, so it is important to compare before choosing.

You contribute your own money (after-tax dollars) to the 529 plan for the benefit of a designated beneficiary (usually a child, grandchild, or even yourself for future education). There are contribution limits per year, which vary by state.

On average, Americans have savings of $26,783 in their 529 accounts. The money in your 529 plan is invested in various options, similar to a retirement account. In 2024, 529 owners or beneficiaries that have had accounts for 15 years may be able to roll assets penalty-free into Roth IRAs.

The key advantage of a 529 plan is the tax benefit. Contributions generally grow tax-deferred, meaning you do not pay taxes on any earnings within the plan. More importantly, qualified withdrawals for educational expenses are typically tax-free.

Are there any tax benefits for using a 529 plan for a private school?

A 529 plan for a private school can be a great strategy for saving with the potential for tax-free growth and withdrawals.  However, it is crucial to stay within the contribution limits and only use the funds for qualified expenses to maximize the tax benefits.

The primary benefit is tax-free withdrawals. When you use funds from your 529 plan to pay for qualified tuition expenses at an eligible private elementary or secondary school, both the contributions you made and any earnings from the investment growth are tax-free. 

However, there is a limit on how much you can withdraw annually for these qualified K-12 expenses. It is currently capped at $10,000 per beneficiary. So, if your private school tuition is higher than that, you will need to cover the remaining amount with other funds. In 2023, the average value contributed from a 529 plan for a four-year private school was $2,975.

The tax-free benefit applies only to qualified educational expenses. If you withdraw funds for anything other than tuition at an eligible K-12 school (including private school beyond the $10,000 limit), you will be taxed on the earnings portion of the withdrawal and with a 10% penalty.

What are the qualified expenses for a 529 plan when used for a private school?

When using a 529 plan for private schools, there is a very specific definition of what qualifies as an expense you can cover with tax-free withdrawals. Currently, the only qualified expense for a 529 plan used for private school is tuition.

This means you can use your 529 plan to pay for the actual cost of instruction at an eligible private elementary or secondary school. However, other expenses associated with private school attendance are not covered by this tax-free benefit. In 2023, 22% of parents used their current income for other college expenses.

Here are some examples of unqualified expenses for a 529 plan used for private school:

• School supplies and books
• Uniforms
• Lunch fees
• After-school activities or programs
• Transportation costs
• Room and board (even if the private school offers dorms)

It is important to be aware of these limitations to help you determine how much to contribute to a 529, and ensure you are using your 529 plan for qualified expenses, and maximizing the tax benefits. 

Can I use the same 529 plan for private school and college expenses?

One of the advantages of a 529 plan is its flexibility. It offers a variety of ways to save for college. You can use the same 529 plan to cover qualified expenses for both private school and college education. 

You can actually designate multiple beneficiaries for a single 529 plan. This allows you to use the same plan for multiple beneficiaries, or even change the beneficiary later if needed.

There are no restrictions on how you allocate the funds within your 529 plan. You can decide how much to use for private school tuition and how much to save for future college expenses.

Here are some things to keep in mind when using a 529 plan for private school and college:

• Contribution Limits: There are annual contribution limits per beneficiary, not per plan. So, the total amount you contribute each year applies to all beneficiaries listed on the plan. Among 529 plan investors, 59% also save via a traditional savings account and 40% invest in a mutual fund.
• Prioritizing Expenses: Since there's a limit on how much you can withdraw annually for K-12 expenses ($10,000), careful planning is necessary. If you use a significant portion of the funds for private school, you'll have less available for college costs down the line.
• Maximizing the Plan: Consider strategies to make the most of your 529 plan for both goals. Starting contributions early allows for time for the funds to grow through investment.

What are the key factors to consider when choosing a 529 plan for private schools?

Based on a survey, 39% of investors believe their 529 plan will cover 25-50% of a college education, 28% believe it will cover 50-75% and 17% believe it will cover 75-100% of college expenses.

When choosing a 529 plan for private school, there are several key factors to consider to ensure you are selecting the best option for your specific situation. Here are some of the most important aspects to evaluate:

• Investment Options: Different 529 plans offer a variety of investment options, ranging from conservative to aggressive. Consider your risk tolerance and time horizon when choosing an investment strategy. Ideally, the plan should offer age-based options that automatically adjust asset allocation as your child gets closer to needing the money for school.
• Fees:  529 plans typically have various fees associated with them, including sales charges, expense ratios, and account maintenance fees.  Compare fees across different plans to find one with a low overall cost structure. Lower fees translate to more money growing for your child's education.
• State Tax Benefits: Some states offer tax benefits for contributions made to their specific 529 plan. This could be a state income tax deduction or credit.  While not always the deciding factor,  it is worthwhile to consider if you are a resident of a state with such an incentive.
• Plan Performance:  Look at the historical performance of the investment options offered by the 529 plans. However, keep in mind that past performance is not a guarantee of future results.
• Ease of Use:  Consider the user-friendliness of the plan's online platform. look for a platform that allows for easy contributions, investment changes, and eventually, withdrawals for qualified expenses.

Are there any state-specific rules for using a 529 plan for a private school?

There can be state-specific rules for using a 529 plan for private schools. While the federal tax benefit allows tax-free withdrawals for qualified tuition expenses up to $10,000 per year, some states offer additional advantages or have specific requirements. 

The net contributions to 529 accounts during the first quarter of 2023 were $1.6 billion, which is half the level of $3.4 billion during the first quarter of 2022. Some states offer tax benefits for contributions made to their own state-sponsored 529 plan. This could be a state income tax deduction or credit, incentivizing residents to save for education within the state's program.

There might be limitations on who can qualify for these state tax benefits. Residency requirements are common, so you might need to be a resident of the state sponsoring the 529 plan to claim the state tax benefits for contributions used for private school.

In a few exceptional cases, some states might allow using 529 plan funds for qualified homeschooling expenses that meet the same criteria as private school tuition. However, this is not the norm and applies only to specific states like Alaska, Indiana, Kansas, Kentucky, and Texas.

Is a 529 Plan Suitable for Funding an Accelerated Bachelor Degree Online?

529 plans are not limited to traditional campus-based education; they can also support innovative academic pathways like online accelerated programs, provided the institution qualifies under federal guidelines. When considering an online accelerated bachelor degree, it is essential to confirm that the program is accredited and recognized as an eligible educational institution for 529 distributions. This ensures that the tuition and related expenses can be paid with tax-advantaged funds. Moreover, aligning your 529 strategy with non-traditional degree options may offer flexibility and faster degree completion, potentially enhancing your overall educational financial plan. For further details on expedited online programs, refer to our post about an accelerated bachelor degree online.

Is it better to choose a state-sponsored plan or a national plan for private school savings?

The best choice depends on your individual circumstances and priorities. Here are the key factors to consider:

Advantages of State-Sponsored Plans

• Many states offer tax deductions or credits for contributions made to their own 529 plan. This can be a significant advantage, especially if you're a resident of a state with a generous tax benefit program.
• Some state-sponsored plans offer investment options focused on in-state colleges and universities. While not directly relevant for private schools, this might be a consideration if your child might eventually attend an in-state public college.
• State-sponsored plans are often well-established with a long history and strong track record. State plan managers and their partners in the nonprofit sector invested nearly $50 million in 529 accounts in 2022 to help families save for college.

Advantages of National Plans

• National plans typically offer a broader range of investment options compared to state-sponsored plans. This can give you more flexibility to choose an investment strategy that aligns with your risk tolerance and time horizon.
• You can contribute to a national plan regardless of your state of residence. This can be beneficial if you anticipate moving in the future or are unsure where your child might attend college.
• Some national plans have lower fees compared to certain state-sponsored plans. Carefully compare expense ratios and other fees to see which option offers a more cost-effective approach.

How does a 529 plan compare to other financial strategies for private school savings?

When planning for private school expenses, families often evaluate multiple savings strategies to determine the most effective and flexible approach. While a 529 plan offers significant tax benefits, understanding how it compares to other financial tools can help you make an informed decision.

1. Tax-Advantaged Accounts

529 plans hold a distinct advantage in terms of tax-free growth and withdrawals when used for qualified educational expenses. By contrast, tools like Coverdell Education Savings Accounts (ESAs) also allow for tax-free growth but impose stricter contribution limits and income restrictions, making them less appealing for higher-income families.

2. Flexibility of Fund Usage

Compared to traditional savings or investment accounts, 529 plans have a more specialized use case, as distributions must be used for tuition to qualify for tax-free benefits. However, custodial accounts, such as Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) accounts, offer greater flexibility since funds can be used for any expense. Yet, assets in custodial accounts legally transfer to the child upon reaching the age of majority, which may not align with all families' financial goals.

3. Opportunity for Employer Assistance

Some families explore employer-sponsored tuition assistance or reimbursement programs, which can provide direct support for covering private school costs. However, these benefits are far less common and often limited to specific education levels or institutions.

4. Loans as a Supplemental Option

For families looking for immediate financial solutions, loans can serve as a bridge for covering private school tuition. While private loans and personal loans are more common, exploring education-specific borrowing options is essential. For example, understanding how to pay for beauty school can provide insights into niche financial aid options, which may even indirectly benefit families exploring private school investments.

By carefully weighing the tax incentives, flexibility, and immediate accessibility of each financial strategy, families can craft a savings plan tailored to their unique private school needs.

What are the fees and administrative costs that could affect my 529 plan returns?

While 529 plans offer notable tax advantages, evaluating associated fees is crucial to understanding their long-term performance. Examine expense ratios, management fees, and any hidden administrative costs, as these factors may reduce the effective growth of your savings over time. Comparing fee structures across various plans can reveal differences that directly impact your net returns and overall financial outcomes. Additionally, consider reviewing financial options and cost assessments alongside alternatives like online degree programs for working adults to ensure that all education financing components align with your long-term objectives.

How do 529 plans fit into a broader educational financial plan?

While 529 plans are excellent tools for managing private school costs, they should be considered part of a well-rounded financial strategy for educational expenses. Integrating them with other savings and funding options can allow families to optimize resources effectively.

For instance, leveraging the tax benefits of a 529 plan while simultaneously considering low-interest nursing school loans for higher education could free up resources to meet both K-12 and college financial goals. Diversification of savings strategies is crucial, as it ensures accessibility to funds without overly relying on a single financial instrument.

Moreover, assessing specific family needs keeps long-term educational ambitions on track. Families with students transitioning from private school to higher education may also find it helpful to redirect unused 529 funds to cover costs for undergraduate or even graduate degrees, provided those expenses fall under qualified education costs.

Additionally, carefully monitoring the potential impact of 529 holdings on future FAFSA calculations can help families maintain an optimized balance between savings and eligibility for need-based financial assistance. With detailed planning, families can effectively use a combination of resources to alleviate educational expenses across various levels of schooling.

What role can online education play in a 529 plan strategy?

Diversifying your educational funding strategy by considering online education can provide additional financial flexibility. Some families choose to allocate a portion of their savings to alternative education pathways that often offer lower tuition costs and innovative learning models. This approach may mitigate the risk of overreliance on traditional schooling expenses by balancing investments between conventional private schools and cost-effective online programs. For example, selecting an online school that accept financial aid can broaden your funding options and help safeguard overall educational investments while maintaining a focus on quality and affordability.

How can I adjust my 529 plan strategy to evolving market conditions and emerging educational options?

Continuous evaluation of your 529 plan is crucial as market dynamics and educational trends shift. Regularly review your investment performance and remain alert to changes in state regulations and tax benefits that could affect your plan’s efficiency. Consider integrating non-traditional education pathways into your strategy to enhance long-term flexibility. For example, incorporating accelerated programs like a short term bachelor's degree can offer a swift transition into a career while preserving funds for K-12 tuition. Engaging with a financial advisor to tailor adjustments and staying informed about both market conditions and innovative learning options can help maintain a balanced, adaptive educational funding strategy.

What are the potential risks of relying solely on a 529 plan for private school tuition?

Investing exclusively in a 529 plan introduces several financial considerations. Market volatility can impact investment growth, meaning that fluctuations may limit the availability of funds when tuition payments are due. Moreover, strict contribution and withdrawal limits can lead to shortfalls if private school costs rise unexpectedly. Families may face liquidity challenges due to the plan’s exclusive use for tuition, leaving other educational expenses uncovered. Additionally, the financial aid calculation may be affected by the plan’s asset status, potentially reducing eligibility for need-based support. In such cases, supplementing savings with options like a small private student loan may be advisable.

Can alternative educational credentials complement a 529 plan strategy?

Diversifying your educational funding strategy through non-traditional credentials can provide a complementary pathway to traditional tuition savings. Integrating programs that offer practical, industry-specific skills may enhance career readiness and long-term financial outcomes. For families seeking to broaden educational opportunities, combining a 529 plan with alternative learning avenues—such as accredited certification programs online—can diversify educational investments without compromising specialized funding for tuition. This approach supports a robust financial plan by addressing evolving workforce demands while maintaining targeted savings for primary and secondary education.

What if my child's educational plans change unexpectedly?

Even with the tax advantages of a 529 plan, it is essential to review its flexibility in light of evolving educational or career goals. Families should consider how shifts—such as a decision to pursue non-traditional academic paths or specialized vocational training—might impact fund allocation. For instance, when a beneficiary opts for a program that deviates from traditional collegiate routes, like those offered by colleges that offer dual degree programs, assessing the plan’s investment strategy and withdrawal terms becomes critical. Recognizing potential tax implications during beneficiary changes or fund rollovers can mitigate penalties while ensuring funds remain aligned with long-term objectives. Consulting financial professionals periodically ensures that the plan can adapt efficiently to unexpected changes in educational plans.

Can 529 plans be effectively combined with other funding sources for non-tuition expenses?

While 529 plan funds are confined to covering tuition, families often encounter additional costs—such as room, board, textbooks, and other living expenses—that fall outside its scope. Balancing tuition savings with a broader funding strategy becomes essential, especially when non-tuition needs arise. For instance, evaluating options like student loans to pay for living expenses can provide the necessary liquidity without compromising the tax advantages of a 529 plan. This integrated approach ensures that educational investments remain robust and adaptable to unexpected financial demands.

Key Findings

• On average, Americans have saved $26,783 in their 529 accounts.
• State plan managers and their partners in the nonprofit sector invested nearly $50 million in 529 accounts in 2022 to help families save for college.
• The net contributions to 529 accounts during the first quarter of 2023 were $1.6 billion, which is half the level of $3.4 billion during the first quarter of 2022.
• 39% of investors believe their 529 plan will cover 25-50% of a college education, 28% believe it will cover 50-75% and 17 percent believe it will cover 75-100% of college.
• Among 529 plan investors, 59% also save via a traditional savings account and 40% invest in a mutual fund.

Other Things You Should Know About Using a 529 Plan for Private School

Will using a 529 plan for private school affect my child's eligibility for financial aid in college?

Using a 529 plan for private school could potentially affect your child's eligibility for need-based financial aid in college. When applying for federal financial aid through the Free Application for Federal Student Aid (FAFSA), parental assets are considered in the calculation of the Expected Family Contribution (EFC). This EFC is a number that represents the amount of money your family is expected to contribute towards your child's college education.

Assets held in a 529 plan are considered parental assets on the FAFSA application. This means the value of the 529 plan will be factored into the EFC calculation.

Generally, a higher asset value leads to a higher EFC.  A higher EFC might translate to less need-based financial aid awarded to your child. However, the impact is not always significant.

Some strategies you might consider:

• Consider contributing to the 529 plan in smaller chunks over several years instead of a large lump sum contribution. This can help spread out the impact on the EFC calculation.
• Prioritize saving for college expenses closer to your child's college years. The EFC calculation uses prior-year tax return information, so contributions made in the year your child applies for college might have less impact.
• Look into scholarship and grant opportunities that your child might qualify for. These can help reduce the overall financial burden of college and potentially lessen the reliance on need-based financial aid.

Are there any federal tax penalties for using a 529 plan for private school tuition?

No, there are no federal tax penalties for using a 529 plan for qualified private school tuition, as long as you follow the specific guidelines.

When you use funds from your 529 plan to pay for tuition at an eligible private elementary or secondary school, both the contributions you made and any earnings from investment growth within the plan are tax-free. This can lead to significant tax savings compared to using taxed dollars for private school tuition.

This tax-free benefit, however, applies only to qualified educational expenses. This means if you use funds for anything other than tuition at an eligible K-12 school, you will be taxed on the earnings portion of the withdrawal.

What are some alternative savings options for private school expenses besides a 529 plan?

While a 529 plan offers a compelling option for private school savings, it is not the only approach. 

A simple savings account allows you to save for private school with readily accessible funds.  This can be a good option if you need flexibility or have a shorter time horizon before needing the money. However, there are no tax benefits associated with traditional savings accounts, and interest rates are typically low.

A custodial account, also known as a Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) account, allows you to invest on behalf of a minor.  Unlike a 529 plan with limitations on qualified expenses, funds in a custodial account can be used for any purpose, including private school tuition. However, once the child reaches the age of majority, they gain control of the funds, which might not align with your long-term education goals.

Some employers offer tuition reimbursement programs or education assistance programs.  These can be valuable resources to help offset private school costs. Explore any such benefits offered by your employer.

Which is better for private school savings: a 529 plan or a traditional savings account?

Choosing between a 529 plan and a traditional savings account for private school savings depends on your priorities and situation. If tax advantages and the potential for higher returns are crucial, a 529 plan might be a better choice, especially if you have a long time horizon for saving. If you need easy access to the funds, prioritize guaranteed principal, or might need the money for other purposes besides private school, a traditional savings account might be a better option.

Contributions to a 529 plan and any earnings from investment growth are tax-free when used for qualified private school tuition. It also offers a variety of investment options. However, funds can only be used for tuition.

Traditional savings accounts offer guaranteed safety of your principal amount.  The funds are readily accessible, allowing for easy withdrawal for tuition payments. You could use it for other purposes besides private school if needed. However, there are no tax advantages and all earnings on the interest accrue regular income tax.

References:

1. Fidelity Investments. (n.d.). How Much Can You Contribute to a 529 Plan?
2. ISS Governance. (2023). ISS Market Intelligence Releases Annual 529 Industry Analysis Report.
3. National Association of State Treasurers (2023). NAST State 529 College Savings Program Plan Data Mid-Year 2023 Report.
4. National Association of State Treasurers (2021). National Compendium of 529 Plan Outreach: Final Report.
5. Strategic Insights in Higher Education (2021). Target Market Analysis: 2021 Trends in Parents Saving and Using 529s from 2018-2021.