Possible benefit: You could offset planned private school tuition expenses
The expanded 529 plan eligibility likely won't justify sending a child to private school if you otherwise wouldn't —but could provide some tax benefits for K-12 tuition expenses you'd have regardless. The higher your income (and potential tax burden at the state level) the more you could benefit. For example, a lower income family in their state's 2% tax bracket might save $200 each year in state taxes by investing $10,000 into a 529 plan and using those funds to pay for K-12 tuition expenses. Yet, a family in their state's 5.75% tax bracket could save $575 each year for that same investment. For taxpayers whose overall state tax bill results in a credit (but one that is not refunded), there is likely no tax benefit to using a 529 plan to fund K-12 expenses.
Possible benefit: Could provide more options if your 529 plan is overfunded
Investing in a 529 plan carries a unique risk: You can't predict your child's future. If you've saved diligently, but your child decides she won't go to college, gets a full scholarship, or wants to attend a school that isn't 529 eligible, you could face a penalty for not using 529 plan funds to cover qualified education expenses. Parents in this scenario could use 529 plan funds to pay for private high school tuition, for example, as soon as they know they won't have the college expenses they expected.
Possible drawback: Your state may not honor K-12 tuition as a qualified expense
While Alaska, Delaware, Georgia, Kentucky, Maryland, Mississippi, Missouri, Nevada, South Carolina, Tennessee, Utah, Virginia, West Virginia and Wisconsin do allow their plans to be used for qualified K-12 tuition expenses, many states specify that 529 funds can be applied to "college" expenses only.
Further, misunderstanding how 529 funds can be used in your state could result in a 10% penalty — and state taxes. Iowa, Maine and Nebraska have formally issued warnings that taxpayers who use 529 plan funds to pay for K-12 tuition could be required to pay state taxes for previous years when they took the 529 plan contribution deduction.
Possible drawback: You could sacrifice your college savings
Investing in a 529 plan consistently (and early) in your child's life can help grow your investment over time, thanks to compounding interest. Using 529 plan funds to pay for K-12 private school tuition may benefit your current budget, but could reduce your potential for tax-free growth. Depending on your finances, that may mean you don't have the money you need to pay for college when your child is older.