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Can a 529 Plan Pay for Preschool? Thumbnail

Can a 529 Plan Pay for Preschool?

Background

529 college savings plans were originally created to help families save for post-secondary education or college. The idea behind these plans is to save and invest for college over the years and as long as money is withdrawn for “qualified educational expenses”, no taxes are owed. That was expanded by the Tax Cuts and Jobs act of 2017. For the first time, families were able to use 529 money for private school for K-12.


Can 529 plans pay for private preschool

The expanded provisions of 529 plans do not apply to preschool, pre-K, or any other educational opportunity that happens before kindergarten. The revised rules are very specific to K-12 as the only “pre-college” exception.

 

Can 529 plans pay for daycare?

Unfortunately, the answer here is still no.

 

Can 529 plans pay for Montessori schools?

No, this does not qualify.

 

Can 529 plans pay for church preschool?

No, this does not qualify.

 

 

What if I want to withdraw money from a 529 anyway for preschool?

You can do that, but there’s a big downside. First, you’ll owe the IRS income (federal) tax on the money you take out. On top of that, you’ll face an additional 10% penalty. Also, depending on your state, you could have additional taxes at the state level. It can be done, but the amount taken by the government will be severe.

 "All your children shall be taught by the Lord, and great shall be the peace of your children." Isiah 54:13 ESV

What should we do instead to pay for preschool?

Good for you on making your child’s education a priority. That priority will need a place in your family spending and budget. Preschools have a variety of payment arrangements. Some are even weekly. Carve out a spot in your budget for this endeavor. If it’s a stretch, consider shopping around for other preschools. Some churches that run their own preschool will offer a discount to their own members. Others, sometimes offer “scholarships” when a family is in need. Keep in mind that any definition of “in-need” is completely up to the individual preschool.



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