A 529 plan is a tax-advantaged savings account designed for education expenses, allowing investments to grow tax-free when used for qualified costs like tuition, books, and supplies.
What is 529 Plan?
Named after Section 529 of the Internal Revenue Code, these state-sponsored investment accounts help families save for education expenses. Contributions grow tax-free at the federal level, and withdrawals remain tax-free when used for qualified educational expenses. Since 2018, federal law has permitted tax-free withdrawals up to $10,000 annually for K-12 private school tuition. Homeschool eligibility has been limited, but significant legislative changes beginning in 2026 will expand qualifying expenses substantially for homeschooling families.
Key Takeaways
- Investment growth and qualified withdrawals are federal tax-free; many states offer additional tax deductions
- Currently allows up to $10,000 annually for K-12 private school tuition
- New 2026 legislation expands eligibility to $20,000 annually for homeschool expenses
- Non-qualified withdrawals incur income tax plus a 10% penalty on earnings
- Unused funds can roll over to Roth IRAs (up to $35,000 lifetime) under current rules
How 529 Plans Work
You open a 529 account through a state plan—you can choose any state's plan regardless of where you live, though your home state may offer tax deductions for using theirs. You contribute after-tax dollars, select from the plan's investment options, and watch your money grow tax-free. When education expenses arise, you withdraw funds and pay qualifying costs. The account remains in your control with your child as beneficiary. If one child doesn't need the funds, you can change beneficiaries to another family member without penalty.
Current K-12 Eligible Expenses
Federal law currently limits K-12 usage to tuition at public, private, or religious schools—up to $10,000 per student annually. This works for private school families but has left homeschoolers largely out of the picture. Books, curriculum, supplies, tutoring, and other homeschool expenses haven't qualified. Some states that consider homeschools as private schools have allowed limited usage, but most homeschool families couldn't access their 529 funds without penalties.
2026 Expansion for Homeschoolers
The One Big Beautiful Bill passed by the House in 2025 dramatically expands 529 eligibility for homeschooling families starting in 2026. Pending Senate approval, families will be able to use up to $20,000 per student annually for: curriculum and textbooks, online educational resources, tutoring services, educational therapies for students with disabilities, dual enrollment fees for college courses, and standardized testing costs including SAT and ACT fees. This represents a significant shift in how federal tax policy treats homeschool education expenses.
State Considerations
The Bottom Line
529 plans offer powerful tax advantages for education savings, and upcoming changes make them increasingly relevant for homeschool families. If you're homeschooling and have been sitting on 529 funds waiting for eligibility to expand, 2026 brings significant relief. Start contributing now to maximize growth before those expenses qualify. Even if your state adds complications, the federal tax-free growth makes 529 plans worth considering as part of your overall education funding strategy.
