How 529 College Savings Plans Now Help With Private School and the Future.
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A 529 plan is a special savings account that helps families save money for higher education. In the past, it was mostly used for college costs, but that changed in 2017.
In December 2017, a new law called the Tax Cuts and Jobs Act made it possible to use a 529 plan to pay for private K–12 school tuition too. Starting in January 1, 2018, families can use up to $10,000 per year from a 529 account to pay for a student’s private elementary, middle, or high school tuition.
The money can only be used for tuition at private, public, or religious K–12 schools. You can’t use it for books, school supplies, or uniforms. The $10,000 limit is per student each year.
Federal vs State Rules
The federal government allows this use without charging taxes. But state rules are different. Some states might charge taxes or take away tax benefits if you use a 529 plan for K–12 school. For example, New York does not support using 529 money for private school and might make you pay back earlier tax savings. So, it is very important to check your state’s rules.
Extra Benefits and Limits
You can put a large amount into a 529 account using a special rule. This rule allows a single person to give up to $90,000 at once or $180,000 for a married couple, counting it as five years of gifts.
Thanks to other recent laws, there are even more benefits. One allows you to use up to $10,000 to pay off student loans. Another new rule, that started in 2024, lets you move unused 529 money into a Roth IRA, which is a retirement savings account. You can move up to $35,000 total for one person’s lifetime, but only if the 529 account is at least 15 years old.
Essential Rules for Roth IRA Rollovers:
The account must be open for 15 years.
Money added in the last 5 years can’t be rolled over.
The person must earn income that year.
You can only move as much money as the yearly Roth IRA limit allows (for example, $7,000 in 2024).
This new rule helps families who saved for college but didn’t use all the money. Instead of wasting the leftover money or paying taxes to withdraw it, they can use it for retirement. It’s a smart way to help young adults save for their future.
Imagine someone finishes college and still has $30,000 in their 529 account. If they earn money from a job or side work, they can move $7,000 a year into a Roth IRA until they’ve moved $35,000. The rest can still be used for education or left in the account.
Necessary to remember: Always check your state’s tax rules. Be careful with the 15-year and 5-year rules. Make sure the person has a job/income, and don’t go over the yearly Roth limit.
By Diana Vasquez, Founder La Chapulina Verde.
