I'm wondering if there's a way to use a 529 to pay for Yeshiva tuition, in New York. I know that New York doesn't recognize K-12 as a qualified expense, so if you withdraw from a 529 account for Yeshiva tuition, you have to pay taxes on it, plus a penalty. What I'm seeing though, is that that only applies if it's a NY account that you took a deduction for. If it's an out of state account, though, there's no penalty (but you'd still pay NY taxes on the growth). I'm also seeing that it's possible to open a 529 in another state. The only downside would be a lack of state tax deduction (which is actually an upside here, since the NY deduction is what causes the penalty). Would this make sense to do as a way to at least get a federal tax deduction on Yeshiva tuition? Is there anything I'm missing here?

529s don't give you federal deductions. its only a state deduction

Whoops, looks like I misread the sources I was seeing. I mixed up tax deductions and tax-free withdrawals 😅 Even though there isn't any federal up-front deduction, there's no tax on qualified withdrawals, if I understand correctly. And with OBBBA, up to $20k of expenses (per kid, per year) are considered qualified withdrawals. So on a federal level, it should function like a Roth IRA for tuition, right?

<!subteam^S0AV5P60PM1> Can you fact check the above? What are the gotchas here? It makes senses to me on face value. Anything we are missing?

Short version: the federal part is basically right as of May 1, 2026, but there are a few important gotchas. There is no federal deduction for contributing to a 529. The federal benefit is tax-free growth and tax-free withdrawals if the withdrawal is qualified. And the official NY 529 site says the K-12 limit increased from $10k to $20k per child per year effective January 1, 2026. So that part checks out. The big gotchas I’d flag are: 1. New York is the trap. A recurring theme in prior Slack discussion was that NY does not treat K-12 tuition as qualified for New York’s 529 plan. NY’s 2025 tax instructions still say K-12 withdrawals from a New York 529 are nonqualified, which means possible addback/recapture. 2. Out-of-state plan is where I’d be more careful. I do not see support for “you still pay NY tax on the growth” as a clean rule. In fact, older NY guidance suggests distributions from an out-of-state 529 generally follow federal AGI unless NY has a specific modification, and the clear NY addback rule is written around New York’s 529 program. So the stronger caution here is: don’t assume the NY treatment of an out-of-state 529 is identical to a NY 529, but also don’t assume it’s blessed without checking. This is the exact piece I’d want verified before anyone implements it. 3. “Like a Roth IRA for tuition” is only partly true. Similar in the sense of after-tax money going in and potentially tax-free growth coming out. Not similar in flexibility. A 529 is still education-bucket money, has state mismatch issues, and has per-student/per-year limits. 4. Timing and documentation matter. The withdrawal should line up with the tuition year, and you want clean records showing it was actually used for qualified K-12 tuition. 5. This only helps if the money has time to grow. If someone is contributing and pulling it out quickly for near-term tuition, the tax benefit may be pretty modest relative to the complexity. So my fact-check would be: federal yes, “Roth-like” as a rough intuition yes, but the NY/out-of-state angle is the part most likely to trip people up. The Slack history here has more confidence on “NY 529 is bad for K-12 in NY” than on the exact treatment of out-of-state 529 + NY resident + K-12 withdrawal. If the thread wants, I can do one more pass specifically on that narrow out-of-state NY-resident question and give a tighter yes/no on that piece.

<!subteam^S0AV5P60PM1> please do

Yes, with one important caveat: I’m now more inclined to think the out-of-state idea probably works for a NY resident, but that last step is still a reasoned inference from the NY rules, not a clean explicit NY webpage saying “yes.” Why I’m leaning that way: _ New York’s current instructions are very explicit about _New York’s 529 program*: K-12 withdrawals are nonqualified for NY, and that’s where the addback/recapture language lives. _ I also found an official NY advisory opinion saying that for a 529 established in another state, if the distribution is excluded from federal AGI, there is no New York modification adding it back. That opinion was about college tuition and is from _November 15, 2007*, so it is not a direct K-12 ruling, but the structure it relies on is still the key point. So the best read I can give is: _ Federal: yes, up to $20k per child per year for K-12 starting _January 1, 2026*. _ _NY 529:* no, NY still treats K-12 tuition as nonqualified for NY purposes. _ Out-of-state 529 for a NY resident: _probably yes*, because I do not see a current NY addback rule for out-of-state plans comparable to the one NY applies to its own plan. Main gotchas I’d still flag: 1. This is not a federal deduction. It is just tax-free growth/withdrawal if qualified. 2. No NY deduction on the way in if you use the out-of-state plan, so the benefit is only on gains. 3. Other state plan quirks matter. Fees, investment options, and any state-specific restrictions. 4. Keep documentation very clean in case the position is ever questioned. 5. For anyone doing this at meaningful dollar amounts, this is CPA-check territory, because the exact NY/out-of-state/K-12 combination is the one place where the official guidance is less direct than I’d like. So if I were replying in one sentence: I think the missing piece is that NY clearly punishes K-12 withdrawals from a NY 529, but an out-of-state 529 likely avoids that NY issue because I’m not seeing a NY addback rule for it, though that part should still be verified before relying on it.

@freezing-artist-98583 i think you’re good

nothing to add to this conversation, just gotta say that bot's pretty impressive

Thank you, put a lot of work into it!

excellent job

I'm also impressed with the bot, great job! The bot it is a bit loquacious though, and I'd love to see sources linked if possible

I read his article. He's ultimately positive about them, for people in a position to be funding long-term education goals: "_Considering that 529 accounts have certain fees and restrictions, it's not worth hassling with them for small sums invested for the short term. But say a couple has a solid income that more than covers their current needs, and their simchas and retirement accounts are already funded sufficiently to cover future needs, too. Where are their additional savings headed, for the most part? To help out their kids and grandchildren. And what will be a major part of their children's financial needs? Tuition. Long-term investing within the cozy tax-free environs of a 529 account can therefore be super beneficial._"

@freezing-artist-98583 sorry yes, I had interpreted the original question as referring to whether 529's could be used to pay for immediate tuition needs, but for the long term they have benefits that may be worth exploring.

Yeah, my original question mixed up tax deductions with tax-free growth, which would make a difference for that