Nonprofit Resources


Section 529 Accounts Are Now Available for Private School Tuition

The Tax Cuts and Jobs Act (H.R. 1), which was signed into law at the end of 2017, made Section 529 College Savings Account plans available for elementary and secondary school tuition, including private and religious schools.

The text of the newly enacted bill relevant to 529 accounts is as follows:



  (1) IN GENERAL.—Section 529(c) is amended by adding at the end the following new paragraph:

‘‘(7) TREATMENT OF ELEMENTARY AND SECONDARY TUITION.—Any reference in this subsection to the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.’’.

  (2) LIMITATION.—Section 529(e)(3)(A) is amended by adding at the end the following:

‘‘The amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to a beneficiary during any taxable year shall, in the aggregate, include not more than $10,000 in expenses described in subsection (c)(7) incurred during the taxable year.’’.

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions made after December 31, 2017.

The bottom line is that beginning January 1, 2018, amounts in a 529 account may be used to pay up to $10,000 of the cost of primary and secondary private school tuition and related fees, books, supplies, and equipment. This includes expenses for special needs services in the case of a beneficiary with special needs.

This will allow parents, grandparents, and other interested parties who have established a 529 account for a current student to begin to use those funds now to fund private school education expenses. In addition, for children that are not yet of school age, parents, grandparents, and other interested parties can open an account today and begin to set aside funds to pay for private school education expenses when the child reaches school age.

In the situation where a parent, grandparent, or other interested person desires to make a current payment toward tuition (and only tuition), there is no particular benefit to using a 529 account. This is because Internal Revenue Code section 2503(e) already permits the direct payment of tuition on a gift tax-free basis; however, this exclusion does not include books, supplies, dormitory fees, board, or other similar expenses. So an individual (e.g., a grandparent) could pay for current tuition out of pocket and pay for other current related education expenses out of the 529 account. Note that the exclusion in section 2503(e) requires that the individuals paying the tuition make the payment directly to the school. They cannot reimburse a parent for the tuition paid and receive the exclusion.

While the House version of the tax bill modified the definition of “educational expenses” in 529 accounts to include certain expenses incurred for a home school, this was removed from the final text of the bill to meet Senate rules. Accordingly, funds from a 529 account cannot be used to pay for home school education expenses.

Additional details of the new tax bill relevant to nonprofits are available in this summary. Please do not hesitate to contact us with any questions.

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