Author’s Note (July 2026): We first published this article to explain a quirk of Nebraska law—that while the federal government treated private K-12 tuition as a “qualified” 529 expense, Nebraska did not. That has finally begun to change. During its 2025 and 2026 sessions, the Nebraska Legislature passed two bills (LB 647 and LB 748) that broaden how NEST 529 funds can be used and bring Nebraska much closer to the federal definition of a qualified expense. Because these changes phase in on a staggered timeline—some are already in effect, and the big one for K-12 tuition doesn’t take hold until January 1, 2029—we’ve refreshed this article to explain what has changed, what is still coming, and what continues to apply in the meantime. As always, rules can change, so please reach out to us if you are ever unsure of how the rules might apply to your situation.
One of the most common goals our clients have is to save for their children’s college expenses. Their specific goals, however, vary widely. Some parents want to provide just enough seed money to get their scholars off to a good start. They might save enough to cover tuition at a two-year community college. Other parents anticipate covering the full cost of tuition and housing at a four-year, in-state university. Still others want to pay for both undergraduate and graduate degrees at whatever school the student chooses. Regardless of how much they want to save, many parents utilize a 529 plan because of the tax benefits.
Federal Law Expanded “Qualified Expenses” Years Ago
As part of the 2018 Tax Cuts and Jobs Act, the federal government allowed 529 Savings Plans (aka College Savings Accounts) to be used for K-12 tuition—up to $10,000 per student per year. For people who currently send (or plan to send) their kids to private school, this was good news. And for families paying K-12 tuition now—while knowing their students will receive scholarships to pay for college later—the change was especially positive. The federal government has only continued to broaden things since. The One Big Beautiful Bill Act, signed in July 2025, raised the annual K-12 tuition limit from $10,000 to $20,000 beginning in 2026, added categories such as books, online materials, and tutoring, and confirmed that families can use funds for postsecondary credentialing programs—think career and technical certifications and the trades.
The catch, as we’ll explain, is that the federal rules and your state’s rules don’t always move in lockstep—and Nebraska has historically been a good example of that gap.
What Happens When You Withdraw for an Unqualified Expense
Before we get to the recent changes, it’s worth understanding what happens when you pull money out of a 529 plan for something that is genuinely not a qualified expense. This still matters, because even with the broader rules, some withdrawals will always fall outside what a 529 is meant to cover—money taken out for a new car, a vacation, or general spending that has nothing to do with education. Those uses were never qualified, and they still aren’t.
When you make a withdrawal for a truly unqualified expense, it can come with multiple penalties. First, the growth on the account is taxed as income at the federal level and possibly the state level for account owners whose states have income tax. Second, there is a 10% federal tax penalty. Third, if account owners received a state tax deduction, they may have to pay back those deductions. Fourth and finally, some states impose another penalty on top of the 10% federal penalty. Nebraska is not one of them—it doesn’t levy its own additional penalty—but the recapture of past deductions and the state income tax on earnings still apply.
State Rules Used to Complicate the Tax Treatment—and Nebraska Is Catching Up
You’d think that once the federal government considers an expense to be “qualified,” you could use funds from a 529 plan to pay that bill without any fear of penalties. But for years, it wasn’t that simple. Each state has to adopt the federal view for it to apply at the state level, and Nebraska was one of the last holdouts that had not—it still required families to use 529 accounts for college and treated K-12 expenses as unqualified. That gap is exactly why we wrote this article. Many of our clients live in Nebraska, so it mattered a great deal.
That has now changed, thanks to two bills. LB 647, passed during the 2025 session, aligns Nebraska with the federal definition and makes private K-12 tuition a Nebraska qualified expense. LB 748, passed 46-3 during the 2026 session, goes further: it adds other K-12 education expenses such as books, tutoring, and online instructional materials, raises Nebraska’s annual withdrawal cap from $10,000 to $20,000, and expands qualified uses to include postsecondary credentialing programs—the career and technical certifications and trade pathways that the federal One Big Beautiful Bill Act recognized in 2025.
The important nuance is timing. These changes phase in on a staggered schedule, and one of them is not here yet:
Postsecondary credentialing (trade schools and career and technical certifications) became a Nebraska qualified expense effective July 17, 2026. If you’re using a NEST 529 to pay for a qualifying credentialing program, that is now treated as a qualified expense at both the federal and Nebraska levels.
Private K-12 tuition and the other newly added K-12 expenses become Nebraska qualified expenses beginning January 1, 2029. Until that date, K-12 tuition is still a Nebraska non-qualified expense, even though the federal government treats it as qualified. In other words, the core scenario this article was written about—a Nebraska resident using a 529 for private high school tuition—still triggers the state consequences below until 2029.
Before we walk through those scenarios, one clarification that hasn’t changed: a situation that has nothing to do with Nebraska’s rules or Nebraska’s college savings plan. Say a parent lives in Kansas, uses Illinois’s state-sponsored plan, and their child attends the University of Nebraska-Lincoln. All of the rules around 529 plans have to do with the state where the account owner (likely the parent or grandparent) lives and the state that sponsors the plan. The state where the child attends school typically doesn’t matter when it comes to 529 plan rules.
Knowing that, let’s look at the scenarios that DO involve Nebraska—as they apply between now and January 1, 2029, for private K-12 tuition.
Scenario 1: The account owner lives in Nebraska and contributed to its state-sponsored 529 plan (the NEST 529 plan)
This describes most Nebraska residents who are using a 529 plan. If you’re living in Nebraska and contribute to the NEST 529 plan, you might qualify for a state tax deduction of up to $10,000 that you contribute to NEST plans. So the NEST plan is a popular choice with Nebraska parents and grandparents.
What happens if you fall in this group and, before 2029, you decide to use your NEST account to pay tuition at your child’s private high school? The federal government views this as a qualified expense, so you probably won’t have to pay federal income tax on the earnings, and you’ll probably avoid the 10% federal penalty. However, until January 1, 2029, Nebraska doesn’t view K-12 tuition as a qualified expense. So you’ll probably have to pay income taxes on the gains. Thankfully Nebraska doesn’t have its own state-specific penalty for unqualified expenses, so you don’t have to pay that. But you do have to repay any state tax deductions that you received in the past when you contributed to the NEST plan. Bottom line for the likely scenario before 2029: you’ll pay state income tax on the earnings, and you’ll pay back the deductions. Beginning January 1, 2029, those K-12 tuition consequences go away, because Nebraska will treat that tuition as a qualified expense.
Scenario 2: The account owner lives in Nebraska but contributed to a different state’s 529 plan
Some Nebraska residents don’t use the NEST plan. For a variety of reasons, they might choose to contribute to a different state’s 529 plan.
What if you’re in this group, and before 2029 you decide to use your 529 plan to pay tuition at your child’s private high school? Again, the federal government views this as a qualified expense, so you won’t pay federal income tax on the earnings, nor will you pay the 10% federal penalty. You never received a state tax deduction when you contributed to that plan, because it wasn’t the state-sponsored NEST plan. That means you won’t have to pay that back. However, until 2029 you will likely be required to pay Nebraska state income tax on the earnings. You live in Nebraska, and you’re subject to Nebraska’s income tax laws regardless of where that 529 plan is held. As with Scenario 1, that state income tax on K-12 tuition earnings falls away starting January 1, 2029.
Scenario 3: The account owner lives in a different state but contributed to the NEST 529 plan
Just as in the previous scenario, some people use a 529 plan sponsored by a state outside their state of residence. For example, someone who lives in Colorado and contributes to the NEST 529 plan would be in this group.
What if you’re in this group, and you decide to use your NEST 529 plan to pay tuition at your child’s private high school? You might have picked up on the pattern by now, but again, you won’t pay federal income tax or a federal tax penalty. You’re subject to the laws of your state of residence, so it depends on whether your state has adopted the federal definition of qualified 529 plan expenses. The fact that you contributed to Nebraska’s 529 plan doesn’t mean you’re subject to Nebraska’s definition of a qualified expense—or to Nebraska’s new phase-in dates.
If your state views K-12 expenses as a qualified expense, you’re in the clear. But if your state has not yet adopted the federal definition and views K-12 expenses as unqualified, you might have to pay state income tax (if your state has income tax) and a state-specific penalty (again, if your state has one). This is a good reminder that Nebraska’s recent changes only help you if Nebraska is your state of residence.
The Change Many Nebraska Families Had Been Waiting For
For years, there were multiple attempts by the Nebraska State Legislature to bring the state’s definition of a qualified expense in line with the federal definition. One earlier effort, LB 165, was proposed in 2023 but stalled and was indefinitely postponed. Those efforts have now succeeded. LB 647 (2025) and LB 748 (2026) together close most of the gap between Nebraska and federal law. The result: postsecondary credentialing and trade programs are qualified in Nebraska as of July 17, 2026, and private K-12 tuition plus related expenses become qualified beginning January 1, 2029, with the annual cap rising to $20,000.
In the meantime, Nebraska residents still need to navigate the differences between the state and federal definitions—especially the 2029 effective date for K-12 tuition. If you’re considering using a 529 plan for K-12 expenses, or if you already have, you should work with a qualified tax advisor before you take a withdrawal, because timing can be the difference between a clean qualified withdrawal and one that triggers state income tax and the recapture of past deductions.
Don’t view the information in this article to be sufficient enough to make a clear conclusion of how it affects you; everyone’s situation is unique. This article is for educational purposes only and is not meant to provide legal or tax advice. For help with your specific situation, consider clicking here to schedule a meeting with us. We routinely help clients with college savings questions. We’d love to help guide you on the right path so you can feel confident about your financial decisions.