ALEC Releases New Report on State 529 Laws
For decades, families have used 529 plans as an effective way to save for college. But not everyone knows that Congress significantly expanded the utility of these accounts in 2018 and again in 2025.
ALEC is proud to announce the release of our new report, Building a Better Path to Education: State 529 Laws After the Working Families Tax Cuts Act. This report highlights critical policy differences in the treatment of K-12 education expenses between state and federal tax law.
For decades, families have used 529 plans as an effective way to save for college. But not everyone knows that Congress significantly expanded the utility of these accounts in 2018 with the passage of the Tax Cuts and Jobs Act (TCJA), which allowed families to spend up to $10,000 each year on K-12 tuition. The Working Families Tax Cuts Act expanded the program in 2025, adding a wide variety of K-12 educational expenses and doubled the annual limit on overall K-12 spending to $20,000 per year.
Despite the change at the federal level, our report identifies 16 states whose laws, regulations, and program guidance only allow some, or none, of these K-12 expenses. As a result, well-meaning families in these states could face unexpected state tax penalties for using their savings on otherwise federally allowable expenses.
For example, Arkansas law defines an eligible 529 expense to include expenses permitted under federal law “as in effect on January 1, 2024.” This means that Arkansas will permit up to $10,000 of spending on K-12 tuition, as approved by the TCJA, but will not allow the non-tuition expenses or the higher limit permitted by the Working Families Tax Cuts Act.
States that allow some, but not all, K-12 expenses: Arkansas, Indiana, Kentucky, Louisiana, and Montana.
States that disallow all K-12 expenses: California, Colorado, Delaware, Hawaii, Illinois, Michigan, Minnesota, Nebraska, New York, Oregon, and Vermont.
To eliminate confusion among taxpayers, lawmakers in any state, especially one of the 16 identified in the report, can consult ALEC’s 529 Education Freedom for States Act. This model policy lays out a template to ensure that a state’s 529 law syncs with federal statute, thus ensuring that the list of permitted expenses is always the same between both. The result is a clear policy that empowers parents to spend their hard-earned 529 savings in a way that will best benefit their child.