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Should You Tap into a 529 Saving Plan Before College?

Tax-advantaged 529 college savings plans aren’t just for college anymore: Such funds can now be used for kindergarten through 12th-grade tuition at private schools—up to $10,000 per child per year—as a result of the 2017 Tax Cuts and Jobs Act.

Not only do 529 plans provide federal tax-free growth and tax-free withdrawals for qualified expenses, but many states offer residents a full or partial tax credit or deduction for contributions to their state’s plan, and some states allow you to deduct contributions to any plan.

That said, not all states permit 529 plan spending on K–12 tuition expenses, so be sure to check your plan’s rules, lest you be subject to state income tax plus penalties.

Of course, tapping a 529 earlier than college may not make sense, even if permitted by state law. If you open a 529 account when a child is born, for example, and then use it a few years later to pay for kindergarten, the investment gains—and therefore the tax benefits—will likely be modest.

“It’s always good to have more options,” says Hayden Adams, CPA and director of tax and financial planning at the Schwab Center for Financial Research. “But the main advantage of 529s is their long-term potential for tax-free gains—to say nothing of saving for college itself—and both can be compromised if you begin drawing down the funds much earlier.”

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