529 Savings Accounts Can Now Fund Homeschooling and More Under 'Student Empowerment Act'

The "Student Empowerment Act" fundamentally changes how families can use 529 savings accounts, expanding their coverage to include K-12 expenses, including homeschooling. Previously restricted to higher education, these tax-advantaged accounts can now pay for a wide range of educational costs, from private school tuition to homeschooling curriculum, starting immediately after the bill's enactment.

Expanding Educational Options

This bill broadens the definition of "qualified education expenses" under Section 529(c)(7) of the Internal Revenue Code. This means families can now tap into their 529 plans for:

• Homeschooling: Curriculum materials, books, online resources, and even educational therapies are now covered.
• Private Elementary and Secondary Schools: Tuition, fees, and other required expenses are eligible.
• Tutoring: As long as the tutor isn't a family member and meets certain qualifications (licensed teacher, experience at an eligible institution, or a subject matter expert), their services can be paid for with 529 funds.
• Testing: Fees for standardized tests, AP exams, and college entrance exams are now included.
• Dual Enrollment: Costs associated with taking college courses while still in high school are covered.
• Educational Therapies: Services from licensed or accredited providers for students with disabilities are eligible.

Real-World Impact

Imagine a family with two children, one homeschooled and the other attending a private school. Previously, they could only use their 529 savings for college. Now, they can use those funds to purchase a new online math curriculum for their homeschooled child and cover part of the tuition bill for their child in private school. Another family with a child requiring specialized tutoring can now utilize their 529 plan to help offset those costs, provided the tutor meets the bill's requirements.

Potential Concerns and Oversight

While the bill offers greater flexibility, there are some practical considerations. The qualifications for tutors, for example, are somewhat subjective (e.g. "subject matter expert"). There's also the question of oversight, particularly for homeschooling expenses. The bill doesn't specify a mechanism for ensuring that funds are used appropriately in a homeschool environment, raising the potential, however small, that families might try to use these accounts for non-educational expenses. While this expands options, it mainly benefits those already able to contribute to 529 plans, potentially widening the gap between higher and lower-income families. The bill may also incentivize homeschooling, even when public schools may be the better option for some students.

The Bottom Line

The "Student Empowerment Act" represents a significant shift in how 529 savings accounts can be used. It provides more choices for families, especially those pursuing homeschooling or private education, but it also raises questions about equitable access to these benefits and the need for oversight to prevent misuse.