Homeschooling Families: Are 529 Plans an Affordable Educational Investment?
In a significant move for millions of homeschooling families across the United States, the One Big Beautiful Bill (OBBB) has expanded the qualifying expenses for 529 plans, providing much-needed tax relief. This federal law, signed under President Donald Trump, has opened up new opportunities for homeschooling families to save on K-12 education costs.
Previously, the Internal Revenue Service (IRS) did not recognise homeschooling as a "school," and therefore, homeschooling expenses were not broadly considered as qualified expenses at the federal level. However, under the OBBB, homeschooling costs are now included in the categories of qualified expenses for K-12 education overall.
Homeschooling expenses that can be covered by 529 plans now include curriculum materials, books, tutoring, testing fees, dual enrollment fees, online education materials, and educational therapies for students with disabilities. This expansion of qualifying expenses is a significant step forward for homeschooling families, who often face high costs in providing their children with a quality education.
The OBBB has also increased the annual withdrawal threshold for 529 plans to $20,000 for tax year 2026, providing families with more flexibility in managing their education expenses. Although Coverdell savings accounts were previously the only other tax-advantaged savings accounts available for homeschool expenses, their income limits could exclude many families from using these accounts. In contrast, 529 plans have no income limits, making them a more accessible option for families.
Retailers such as Barnes & Noble and Target sometimes offer promotional codes for homeschooling parents and educators, but verification of teacher status is required. Homeschool parents can also save on K-12 education costs by seeing if their state offers financial assistance, enrolling their child in city or town-led extracurricular activities, using free curriculum options and printable materials, and taking advantage of these promotional codes.
Sites such as Easy Peasy Homeschooling offer free curriculum options and printable materials for homeschool educators, which might be used in conjunction with lesson plan materials. Homeschooling has increased by 36% in recent years, with over 3 million homeschool students currently enrolled in the U.S. This growth in homeschooling, combined with the expanded tax relief provided by the OBBB, is expected to have a significant impact on the lives of many families across the country.
While the OBBB has provided a much-needed boost to homeschooling families, it's important to note that specific provisions for homeschooling vary by state. Some states, including Alaska, Indiana, Kansas, Kentucky, and Texas, may allow the use of 529 funds for homeschooling if they treat homeschooling as private schooling. However, federal law may not recognise homeschooling expenses as qualified expenses in all states.
In addition to the OBBB, the School Choice Tax Credit also supports homeschooling indirectly by offering a nonrefundable federal credit for donations to scholarship organizations supporting homeschooling and other non-public education options. A proposed federal component of the bill aimed to allow tax-free withdrawals for homeschool expenses, but this aspect requires further legislative approval.
In conclusion, the OBBB has expanded the qualifying expenses for 529 plans, providing homeschooling families with tax relief, particularly if the family pays into the public school system and/or homeschools out of necessity. This move is expected to have a significant impact on the lives of millions of homeschooling families across the country.
- The OBBB now includes homeschooling costs such as curriculum materials, books, tutoring, testing fees, dual enrollment fees, online education materials, and educational therapies for students with disabilities in the categories of qualified expenses for personal-finance tools like 529 plans.
- With the increase in the annual withdrawal threshold for 529 plans under the OBBB, families now have more flexibility to manage their education costs, surpassing the income limits that previously restricted the use of Coverdell savings accounts for education-and-self-development purposes.
