Tutoring and Test Prep Just Got More Affordable

Tutoring and standardized test prep are essential to most families in the U.S. Until recently, those expenses were considered “extras” by the IRS — not something you could tap into a 529 college savings plan to cover. That all changed in July 2025, when Congress passed new tax legislation that qualified paying tutoring and test prep expenses under 529 plans.

Parents can now withdraw money from their 529 plan tax-free to cover tutoring, standardized test prep, and even educational therapy for K–12 students (CNBC, Aug 20, 2025). For many families, this represents a 25% or more reduction in the cost of tutoring or test-prep. This is an amazing development for parents at a time when jobs, prices, and the economy in general all feel chaotic.

529 Plans Go Beyond College: Tutoring & ACT/SAT Prep

Before 2025, 529 plan withdrawals were mostly limited to:

• College tuition, boarding, fees, and textbooks
• $10,000/year for K–12 private school tuition

Now, under the NEW law, parents can also use 529 funds for:

• Tutoring Services (with credentialed, unrelated instructors)
• Standardized Test Prep, such as SAT, ACT, and AP exam tutoring
• Educational Therapy for students with learning differences
• Dual-Enrollment Courses that count toward college while in high school
• And more...

Plus, the annual cap on K–12 withdrawals has doubled - from $10,000 to $20,000 per child (Forbes, July 2025).

How to Pay for Tutoring with a 529 Plan

Here’s how families can use this benefit:

1. Pay for tutoring, test prep, or exam fees as you usually do.
2. Request a tax-free withdrawal from your child’s 529 plan for the same amount.
3. Reimburse yourself.

Because the expense now counts as “qualified,” the withdrawal is tax-free at both the federal and (often) state level.

✅ Example: A family spends $3,000 on SAT prep courses. They can take $3,000 out of their 529 account to reimburse themselves without paying tax. This can represent up to an $1,100 savings for many families.

Important Rules to Know

• Tutor Qualifications: The tutor must be unrelated to the student and subject expert or credentialed educator, like the ones at The House.
• Annual Cap: Maximum $20,000/year per child for all K–12 qualified expenses combined (tuition, tutoring, test prep, etc.).
• Documentation: Keep receipts for courses for all qualified expenses for your tax records
• State Variations: Some states haven’t yet aligned their tax codes with the federal update. Check with your state’s 529 administrator.

Important Note for Illinois Families
If you live in Illinois, it’s important to know that the state has not yet aligned its tax rules with the 2025 federal 529 plan expansion. This means:

• Withdrawals may be subject to Illinois state income tax.

• Withdrawals for college-related expenses (tuition, room/board, required fees) remain tax-free at both federal and state levels.

💡 Tip: Illinois residents should check with a tax advisor or their 529 plan administrator before withdrawing funds for K–12 purposes. You can still benefit from the federal tax-free rules, but there may be state-level taxes owed.

Why This Matters for Families - Education Savings!

This expansion is a game-changer for families investing in education:

• Less Expensive Tutoring: Using pre-tax dollars reduces the cost by up to 37%. 
• Improved Grades & Test Scores: Utilizing tutoring gives families and student increased access to colleges and scholarships.
• Improved Flexibility: 529 plans are no longer “just for college.” They help throughout childhood.

Patricia Roberts, COO of Gift of College, explains: “Being able to use a 529 plan now to pay for tutoring and dual enrollment courses means students can be better prepared for college — and may even lower costs by graduating sooner” (CNBC, 2025).

What Parents Should Do Next

• Check your 529 plan rules. Confirm your state has adopted the new federal provisions.
• Review receipts. Keep records of tutoring, prep courses, or exam costs.
• Talk to your financial advisor. See how to best structure withdrawals while saving for college.
• Plan ahead. With the $20k annual cap, you can allocate funds strategically between tuition, tutoring, and other costs.

Final Takeaway

For years, parents had to pay for tutoring and test prep entirely out-of-pocket. Thanks to the this new 529 Plan Rule, those same expenses can now be covered with tax-free 529 plan dollars.

This shift could save families thousands — and make academic success more affordable.

⚖️ Disclaimer: This article is for informational purposes only and reflects what we’ve learned from publicly available sources. It should not be considered tax, legal, or financial advice. Families should consult with a qualified financial advisor or tax professional to determine how these rules apply to their specific situation.