If you have a 529 education savings account, there's a change worth knowing about: as of July 2025, federal law now lets families use 529 funds for tutoring — not just college tuition. For families paying out of pocket for academic support, that can mean covering it with money that's grown tax-free.
But there's a Hawaiʻi-specific catch that most national articles skip, and it matters a lot for local families. I'll walk through what actually changed, whether tutoring qualifies, the Hawaiʻi wrinkle, and what to check before you withdraw. One thing up front: I'm a tutor, not a tax professional. This is general information to help you ask the right questions — not tax advice. Confirm the specifics with your own tax advisor before doing anything.
What actually changed
The OBBBA 529 expansion in plain terms
Does tutoring qualify?
The three-part test a tutor has to meet
The Hawaiʻi catch
Why the state tax treatment is different
Before you withdraw
What to confirm and document first
What Actually Changed
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, made the biggest expansion to 529 plans in years. For most of their history, 529s were college-only. A 2017 law added K-12 tuition (up to $10,000/year), but nothing else at the K-12 level qualified — not tutoring, not curriculum, not test fees.
OBBBA changed that. Here's what's new at the K-12 level.
The annual K-12 cap doubled
From $10,000 to $20,000 per student per year, starting tax year 2026. It's per student across all 529s, covering all K-12 expenses combined.
Tutoring became a qualified expense
Tutoring outside the home now qualifies — as long as the tutor meets specific requirements (more below). This is the headline change.
Test fees and prep were added
Standardized tests, AP exams, and SAT/ACT fees now qualify. Test prep from a qualified tutor counts under the tutoring rule too.
Curriculum, dual enrollment & therapies
Also added: curriculum materials, books, online materials, dual-enrollment fees, and disability therapies from licensed providers. A win for homeschool families.
Does Tutoring Actually Qualify?
Yes — but not all tutoring, and not from just anyone. The law is specific about who counts as a qualified tutor. The tax code (IRC §529) sets two conditions that both have to be true.
The tutor must be unrelated to the student
No parents, siblings, grandparents, aunts, or uncles. You can't pay a family member from a 529 and call it qualified tutoring. The tutor has to be an unrelated third party.
The tutor must meet one of these three qualifications
Holds a current teaching license issued by a state.
Has teaching experience at a school, college, or university that qualifies under federal rules.
Demonstrates recognized expertise in the subject being tutored — through credentials, a degree, or a professional track record in the field.
Where I fit in
For what it's worth: I have a degree in Mathematics (with honors), around a decade in education, and a professional background as a data analyst and software engineer — including work on the U.S. Navy's Aegis Defense System. For math and computer science, that's the kind of subject-matter expertise the third qualification describes, and I'm an unrelated third party. Whether my services qualify for your specific 529 situation is a question for your tax advisor — but I'm happy to provide invoices that clearly document the tutoring service, the subject, and my credentials, which is exactly what you'd want on file.
If you're thinking about using 529 funds for math, test prep, or computer science tutoring, I'm glad to talk through how it'd work and provide documented invoices. Start with a free intro session — no commitment, and a good chance to see if it's a fit before any of the money questions come up.
The Hawaiʻi Catch (Read This Part)
Here's the part most national articles about this change leave out — and it matters more for Hawaiʻi families than almost anywhere else. The OBBBA expansion is a federal change. Hawaiʻi does not follow it for state income tax.
Hawaiʻi has never treated K-12 529 withdrawals as qualified at the state level, and that hasn't changed. According to HI529 — Hawaiʻi's own state 529 program — K-12 withdrawals (including for tutoring and test fees) are treated as a Hawaiʻi non-qualified withdrawal, which means the earnings portion is subject to Hawaiʻi state income tax.
Tutoring from a qualified tutor is a qualified K-12 expense. The earnings portion of your withdrawal is free from federal income tax, and there's no 10% federal penalty — because this is a federally qualified expense, not a non-qualified one.
Hawaiʻi treats the same K-12 withdrawal as non-qualified for state purposes. The earnings portion is subject to Hawaiʻi state income tax. Your original contributions are never taxed — only the earnings that have grown in the account.
So what does this actually mean in practice? It depends heavily on how much of your 529 is earnings versus contributions. If you opened the account recently and it hasn't grown much, the taxable earnings portion of a tutoring withdrawal is small — the Hawaiʻi tax hit may be minor. If the account has grown substantially over many years, a larger share of each withdrawal is earnings, and the state tax matters more.
This isn't a reason to avoid it — just to plan
The federal benefit is still real: tax-free growth used for a qualified purpose, no federal penalty. The Hawaiʻi state tax on the earnings portion is a cost to weigh, not a dealbreaker. For many families, using 529 funds for tutoring still comes out ahead of paying with after-tax cash — but the math is individual, and it's exactly the kind of thing to run by your tax advisor before you withdraw. There's also pending state legislation that could change Hawaiʻi's treatment in the future, so it's worth staying current.
Before You Withdraw: A Practical Checklist
If you decide to use 529 funds for tutoring, a little care on the front end keeps everything clean if the IRS or the state ever asks. Here's what to confirm and keep.
Unrelated to the student, and either state-licensed, a former institutional instructor, or a documented subject-matter expert in what they're tutoring. Ask the tutor directly and keep a record of their credentials.
Each invoice should identify the service as tutoring, name the subject, show the date and amount, and ideally note the tutor's qualifying credential. "Test prep" should be labeled as such. Documentation is what protects a qualified withdrawal.
Take the 529 distribution in the same calendar year you pay the tutoring expense (proposed IRS rules allow through March 31 of the following year in some cases). A withdrawal in the wrong year can be treated as non-qualified — so don't let the timing drift.
$20,000 per student for 2026 (across all 529 accounts and all K-12 expenses combined). If you're also using 529 funds for K-12 tuition or curriculum, tutoring shares that same cap — it's not separate.
Know roughly how much of your account is earnings versus contributions, since Hawaiʻi taxes the earnings portion of a K-12 withdrawal. Your plan's year-end statement shows this breakdown. Factor it into whether the withdrawal makes sense for you.
Everything here is general information, not tax advice. A quick conversation with a tax professional who knows your full picture is the single best thing you can do before making a 529 withdrawal for tutoring.
The bottom line: the federal change is genuinely useful, and for many Oahu families it opens up a tax-advantaged way to pay for the academic support their kids need. Just go in with eyes open about the Hawaiʻi state tax piece — and get a professional's read on your specific situation before you move any money.
