529 Plans

Can a 529 Plan Pay for Private High School?

March 15, 2021
Sootchy Team

529 plans offer many benefits when saving for education, but can these benefits be extended to private high schools? The Sootchy savings team explains.

Can a 529 Plan Pay for Private High School?

Whether you’re the parent or relative of a future student, there’s a lot to love about 529 plans. Because each state offers its own take on this federally established savings option, prospective account owners can choose from a wide variety of plans, each of which offers substantial tax benefits – some plans are greater than others in this regard – as well as powerful investment options. Of course, these benefits come at a price: funds can only be used to cover certain expenses, for instance, and those making an unauthorized withdrawal will have to pay a penalty for doing so. Still, even with these limitations, many families look to 529 plans to help them cover education-related expenses, and given this purpose, you might wonder: “Can a 529 plan pay for private high school?” To find out, continue reading as the education savings account experts at Sootchy shed some light on the topic.

Can You Use a 529 Plan to Pay for Tuition at a Private High School?

Enrolling your child at a private high school can be a costly endeavor, the greatest single cost of which is undoubtedly tuition. Although items like uniforms, fees, transportation, housing, and supplies can quickly add up, it’s tuition that families typically need help financing. Given that 529 plans are often called 529 college savings plans, you might assume that these accounts are only good for covering tuition at a college or university, but in reality, the opposite is true: There are a number of expenses that are considered “qualified distributions” under Section 529 of the Internal Revenue Code, including the cost of attending a private high school.

Whether or not a given plan can be used for that purpose will largely depend on the type of plan it is. The most common variety of 529 plan is the education savings plan (also sometimes known as the college savings plan), which is distinct from the prepaid tuition plans that are also offered under Section 529. The latter kind of plan is more rigid in its uses; in most cases, you can only put the funds in one of these accounts toward college, and the state often controls investments. However, if you have an education savings plan or ABLE account (also called a 529A account), you should have no problem using at least some of the funds in your plan for private high school tuition.

Restrictions on Using a 529 Plan to Cover Private High School

With the passage of the Tax Cuts and Jobs Act of 2017, the use of 529 plans was expanded to include primary and secondary education expenses, but there are caveats concerning this provision, starting with a limit on the amount of money spent. While account owners who want to use their 529 plan for higher education costs can spend as much from their plan as they want, anyone using their plan to pay for a private high school can only spend up to $10,000 per year. Beyond that limit, any expenditures will be treated as non-qualified distributions, which incurs income taxes and a 10% penalty.

And along with this spending limitation comes restrictions on what kind of private high school-related costs are covered by a 529 plan. If you want to pay for tuition or any mandatory fees the school might impose, you’re free to tap into your 529 account, but other expenses are considered off-limits. This rule is in contrast to the variety of higher education expenses covered by 529 plans, such as housing and books, but it applies in all cases for those financing primary or secondary education.

How to Use a 529 Plan to Pay for Private High School

When it comes time to pay the tuition bill at your child or relative’s private high school, the process is quite simple. Essentially, a 529 plan works like any other financial account that you might use to pay for a private high school; you can take the funds out whenever you want, and as long as they go toward qualified expenses, there’s no need to take any extra steps. That said, you’d do well to keep copies of all bills and statements for your records, as the IRS does conduct audits of those with 529 plans. Anyone found to have spent funds in an unauthorized way while neglecting the corresponding taxes and fees may face steep fines and other penalties.

There’s one final point that you should keep in mind as well when considering how you want to use your 529 plan: picking the right investment portfolio. Each 529 plan comes with a selection of investments, but these predetermined options are generally designed to provide optimal returns after a period of 18 years or so. If you are planning to tap into your 529 account before that point, you may want to pick a static investment option that you can customize. Some investments offer the possibility of higher rates of return, which could make it easier to build up the necessary funds by the time the plan’s beneficiary starts at a private high school, but more aggressive investments also come with greater risk to your assets, so be sure to weigh your financial goals and tolerance for risk when setting up and managing your 529 plan.

Start a 529 Plan for Private High School Today with Sootchy

Experts recommend that parents looking to save for college start as early as possible; given the shortened timeline for families saving for a private high school, it’s all the more important to get started with the right education savings account as soon as possible. Let Sootchy help you open and manage your 529 plan quickly and easily. Visit us online or download the Sootchy smartphone app to learn more.


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