The Top 5 Benefits of Using Your 529 for ACT/SAT Prep

This expansion isn’t just about new rules—it’s about unlocking real financial advantages for your family’s educational investments. Here’s how using your 529 College Savings Plan for test prep can benefit you:

1. Tax-Free Withdrawals Act as an Automatic Discount

Think of this as getting an instant discount on your tutoring costs. When you use 529 funds for qualified tutoring expenses, you’re essentially paying with pre-tax dollars. For many middle-income families in the 22-24% tax bracket, this creates an automatic 22-24% discount on prep costs.

Real Example: If you spend $3,000 on ACT prep and you’re in the 25% tax bracket, using 529 funds effectively reduces your net cost to $2,250—that’s $750 in immediate savings without any coupons or promotional codes needed!

The Power of Single Points: Sometimes just one point can make an enormous financial difference. Consider a student who scores a 27 on the ACT versus a 28. At many universities, that single point difference can mean the difference between receiving no merit scholarship and qualifying for a $6,000 annual award (totaling $24,000 over four years). We’ve seen students miss scholarship thresholds by just one point, making targeted prep an incredibly high-stakes investment.

2. Exceptional Return on Investment Through Score Improvements

Quality ACT/SAT tutoring typically boosts scores by 3-5+ points, and these improvements can unlock substantial financial rewards. Higher test scores often translate to:

• Merit-based scholarships ranging from $5,000 to $50,000+ annually
• Admission to more selective colleges with generous financial aid packages
• Enhanced need-based aid eligibility through stronger overall applications

When you consider that comprehensive test prep might cost $2,000-$5,000 but could result in tens of thousands in scholarship money, the ROI becomes compelling. The tax-deferred growth in your 529 plan amplifies these returns even further.

Why Every Point Matters: Many universities have specific ACT/SAT score thresholds for their merit scholarships. Here are some real examples of how single points can impact scholarship awards:

• University of Alabama: Students with a 27 ACT receive $8,000 annually ($32,000 over four years), while those with a 28 receive $10,000
• Auburn University: A 30 ACT qualifies for $7,000 annually, while a 31 receives $11,000 annually
• University of Mississippi: Moving from a 28 to a 29 ACT can increase scholarship awards from $5,000-$7,500 per year

This means that investing in tutoring to gain even one additional point can literally pay for itself many times over—and now you can fund that tutoring with tax-free 529 dollars.

The 529 Multiplier Effect: Real Numbers, Real Returns

Our 529 Multiplier Effect analysis shows just how powerful combining tax-free 529 withdrawals with strategic test prep can be. Here’s what the numbers reveal:

These calculations demonstrate that even conservative scholarship estimates deliver exceptional returns when you factor in the tax advantages of 529 plans. In the average scenario, every dollar invested in 529-funded test prep returns $14-$21 in scholarship value—making this one of the highest-return educational investments available to families.

3. Tax-Deferred Growth Maximizes Your Educational Dollars

Unlike regular savings accounts where investment gains are taxed annually, your 529 funds grow tax-deferred. When you use these funds for qualified expenses like tutoring, you avoid both income taxes and the 10% penalty on withdrawals. This means more of your money stays working for your family’s educational goals rather than going to the IRS. 

4. Enhanced Access to Premium Tutoring Services

Previously, many families had to choose between affordable group classes and one-on-one tutoring. With 529 funds now available for test prep, families can access:

• Personalized, one-on-one tutoring sessions
• Specialized ACT prep programs from expert tutors
• Comprehensive test prep packages that were previously out of budget

This levels the playing field and gives students from diverse economic backgrounds access to the same high-quality preparation resources.

5. Increased Flexibility with Higher Annual Limits

The annual limit for K-12 qualified expenses increases significantly:

• 2025: Up to $10,000 per beneficiary
• 2026 and beyond: Up to $20,000 per beneficiary

Additional State Tax Benefits

Don’t forget about state-level advantages! Many states offer upfront tax deductions for 529 contributions. For example, New York provides up to a $10,000 deduction for joint filers. When you combine state contribution deductions with federal tax-free withdrawals for tutoring, the savings can be substantial. Kansas residents can annually deduct up to $6000 in contributions each year.

Minimal Impact on Financial Aid

Here’s another advantage many families don’t realize: parent-owned 529 assets are assessed at only up to 5.64% in the Student Aid Index (SAI) formula used for financial aid calculations. Even better, qualified withdrawals for tutoring aren’t reported as student income on the FAFSA, preserving your eligibility for need-based aid while you invest in test prep that could unlock merit-based scholarships.

How Get Smarter Prep Can Help

At Get Smarter Prep, we understand that every point matters when it comes to standardized test scores. Our personalized tutoring programs are designed to maximize your student’s potential while providing exceptional value for your educational investment.

Our services that now qualify for 529 funding include:

• Private, One-On-One ACT/SAT tutoring sessions
• Comprehensive test prep packages
• Semi-Private ACT/SAT Tutoring
• ACT FLEX prep courses

High School Juniors:

• Start with a Free Practice Test to establish a baseline score and understand your current standing.
• Choose the best ACT/SAT test date based on your schedule.
• Begin studying 8-12 weeks before your chosen test date.
• Juniors typically start this process during their second semester or at the end of their first semester, especially after completing Algebra II, as the ACT heavily features this subject.
• If Superscoring is an option, consider taking the test more than once to achieve a higher score.

High School Seniors:

• If you’ve already taken an ACT/SAT, sign up for test prep.
• Schedule your prep 8-12 weeks before your test date, with weekly sessions leading up to the ACT/SAT.
• Consider taking the ACT/SAT multiple times if Superscoring.

Ready to Get Started?

With these expanded 529 benefits, there’s never been a better time to invest in your student’s test prep journey. The combination of tax advantages, potential scholarship returns, and access to premium tutoring services makes this an opportunity too good to miss.

Contact Get Smarter Prep today to learn how we can help your student achieve their best possible test scores while maximizing your 529 plan benefits.

This information is based on current federal tax laws and the One Big Beautiful Bill Act signed in July 2025. Please consult with your tax advisor or financial planner to understand how these changes apply to your specific situation.