For years, 529 college savings plans were mainly used for tuition, room and board, and limited K–12 expenses. That changed recently. New federal legislation expanded what qualifies as a tax free 529 expense, making these plans even more useful for families preparing students for college.
As of mid 2025, families can now use 529 funds to pay for SAT and ACT test preparation, opening the door to using college savings earlier in a student’s academic journey.
What’s New With 529 Plans
Federal law now allows 529 plan funds to be used for a broader range of education related expenses. This expansion applies to distributions made on or after July 4, 2025.
Qualified expenses now include SAT and ACT test prep courses, standardized test fees such as the SAT, ACT, and AP exams, academic tutoring outside of traditional tuition, curriculum materials and instructional tools, dual enrollment fees for college courses taken in high school, and educational therapy for students with learning differences.
This means families can use 529 funds for formal test prep programs, private tutoring, and structured academic support without paying federal income tax on the withdrawal, as long as the expenses qualify.
What Counts as SAT and ACT Test Prep
Eligible test prep expenses generally include enrollment in in person or online prep courses, private or group tutoring sessions focused on test performance, practice exams and official study materials, and academic coaching specifically designed for standardized testing.
It is important that these services are clearly educational in nature. Families should keep detailed receipts and invoices that show what services were provided and when they occurred.
Annual Limits to Know About
There are still limits on how much can be used each year for K–12 related expenses.
For 2025, families may use up to $10,000 per student per year for qualified K–12 expenses, including tutoring and test prep. Beginning in 2026, this annual limit increases to $20,000 per student.
These limits apply per beneficiary, not per account.
State Tax Rules Matter
While this change applies at the federal level, state tax treatment can vary. Some states automatically conform to federal rules, while others require additional guidance before offering state tax benefits for newly eligible expenses.
Before withdrawing funds, families should check with their 529 plan administrator or a tax professional to confirm how their state handles these expanded expenses.
Why This Change Is a Big Deal
SAT and ACT prep courses often cost hundreds or even thousands of dollars. Being able to use 529 funds for these expenses can significantly reduce out of pocket costs.
This update also allows families to use 529 savings earlier, supports students during a critical college preparation stage, and adds flexibility to how education savings are used.
A Simple Example
If a family spends $1,500 on an SAT prep course for a high school student, that cost can now be paid for using 529 funds. As long as the expense qualifies and documentation is kept, the withdrawal can be federal tax free and applied toward the annual K–12 limit.
Final Takeaway
529 plans are no longer just for college tuition. With the expanded rules, they can now help families cover important college readiness expenses like SAT and ACT prep.
To make the most of this update, families should confirm eligible expenses with their plan provider, save all receipts, and consult a tax professional if questions arise.
With careful planning, 529 savings can now support students well before their first day on campus.
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