529 for primary/secondary education

[hbomdiggity]

Anyone use a 529 for elementary or high school education?

We opened a 529 account when DS was born, but it doesn’t have a ton it yet (under 5 figures) as we figured we had plenty of time.

Now that he is in K, it seems we will be taking the private school road for primary and secondary education. Apparently you can withdraw up to $10k/yr for private school tuition (which is the current tuition amount we pay). Seems like we should be upping our contributions to use tax free gains to pay tuition. Thoughts?

[coffee]

How would this work? Is there any way to take advantage of it if we don’t have a large amount already?
The interest earned so far is not that much, which It would not even cover one school year.
If we put our annual tuition in the 529 and then pay tuition monthly, would it be worth it?
If I understand correctly we would be saving almost nothing, is that right?

[goldengirlz]

This is a Trump era policy that I have FEELINGS about. But that aside.

Yes, you can use a 529 for this purpose, but if you’re only keeping the money in the account for a short amount of time, your capital gains might not be that big. You could also lose money if the market crashes; like any investment, your best asset is time. So you’re really talking about saving for middle and high school; elementary school would probably be a wash. But given how expensive college has gotten, you want to be careful that you’re not cannibalizing your college savings by constantly withdrawing money that needs to sit, grow and ride out market corrections.

My personal take: this is a hack for wealthy people who already have their college savings taken care of.

ETA: Also, along the same lines, saying you have “plenty of time” to save for college kind of misses the whole point of investing in a 529. The idea is that you won’t have to save as much as you would if you cash flowed it because you’d be relying on market growth to get you to the necessary amount. Time is the secret ingredient!

[coffee]

Thank you!!! . This is what I thought. Not worth for us since we don’t have a lot of extra cash to put now. We will continue cash flowing elementary/secondary and keep investing for college. Thanks again!

[daisyduck]

In my state you have to leave the money in the account for a year in order to get the tax deduction, so be sure to check if your state has similar rules. For the first year you could only use money that was already in there and you'd have to deposit enough to cover the next years tuition a year in advance.


I would definitely use the account to pay for private school though. Why pay taxes on the money if you don't have to?

ETA: In my state you can withdraw what you put in after a year, not just the gains. I agree with others that this wouldn't make sense if you could only withdraw the gains.