HOW THE NEW RULES COULD BENEFIT YOUR ENTIRE FAMILY
Section 529 accounts have long been one of the most effective, tax-advantaged tools for families saving toward a child’s education expenses. With passage of the One Big Beautiful Bill Act (OBBBA), these plans are now more flexible than ever—extending far beyond traditional education costs and offering opportunities to plan for life long learning and professional development. The OBBBA’s expanded rules make now a great time to revisit how 529 plans might fit into your entire family’s education strategy.
WHAT IS A 529 PLAN?
Section 529 savings plans, also called qualified tuition plans or QTP accounts, were first introduced in 1996. Every state offers at least one plan, though you do not have to use a plan from your home state.
Key features include:
- Tax benefits: Most significantly, assets grow tax-deferred and can be withdrawn tax-free if they are used for qualified education expenses. Further, while contributions are not deductible at the federal level, more than 30 states offer some form of state income tax deduction or credit.
- Control: The account owner (often a parent or grandparent) maintains control over the account, even if it is established for a different named beneficiary.
- Flexibility: There is no timeline to use 529 account funds, and accounts can be transferred to another beneficiary if the original beneficiary does not use the funds. There is also an option to roll over up to $35,000 into a Roth IRA.
- Generous Contribution Limits: There is no federal cap. Most states set a sizable maximum amount that can be contributed to their 529 plan(s), ranging from $235,000 to $597,000 per beneficiary. (Workaround: If you need to contribute more than a state limit, consider opening a plan in a different state.)
- Contributions Are Gifts to the Beneficiary: You can fund up to $19,000 per year in 2025 ($38,000 for married couples) without triggering a gift-tax filing, or take advantage of a special rule that allows combining 5 years’ worth of gift contributions in a single year (up to $95,000, or $190,000 combined for spouses who gift-split) without having to file a gift tax return.
WHAT’S NEW UNDER THE OBBBA?
1. Expanded Post-secondary Uses:
Traditionally, 529 plans could only be used for certain college, vocational school, and apprenticeship program expenses. Under the OBBBA, 529 account funds can now be used to pay eligible expenses for:
- professional and occupational licenses issued by a state or the federal government (e.g., CPA exam preparation and testing fees, bar exam fees, commercial driver’s license costs);
- credential and training programs authorized under the Workforce Innovation and Opportunity Act (WIOA) across healthcare, IT, manufacturing, construction and many other fields;
- apprenticeships registered and certified by the U.S. Department of Labor;
- credential programs recognized by national credentialing organizations; and
- Credentialing Opportunities On-Line (COOL) and Web Enabled Approval Management System (WEAMS) programs for members of the armed forces.
Eligible expenses were also expanded under the OBBBA, and now include:
- tuition, fees, books, supplies, equipment , software and internet access expenses for qualifying post-secondary credential programs;
- testing fees to obtain or maintain post-secondary credentials; and
- continuing education fees to maintain post-secondary credentials.
Takeaway: 529s are no longer just for “traditional students”—they are for professionals, tradespeople, and even retirees seeking new certifications.
2. Broader K-12 Coverage
Previously, tax-free 529 withdrawals for K-12 education were limited to $10,000 annually per student for tuition at public, private or religious secondary schools. The OBBBA broadens this substantially:
- Higher annual limit: Beginning in 2026, the annual K-12 withdrawal cap doubles from $10,000 to $20,000.
- New eligible expenses: curriculum and curriculum materials, books and other instructional materials, online educational materials, tuition for tutoring or educational classes outside the home (from unrelated, licensed teachers), fees for national standardized achievement, advanced placement or admissions tests (e.g., SAT, ACT and AP fees), dual-enrollment fees for college courses taken during high school, and special-needs therapies.
This new flexibility can make 529s a useful tool for families who supplement public education or pay private-school costs.
Note: Some states tax 529 withdrawals for K-12 education, so it is important to check your state’s rules before making such withdrawals.
Why This All Matters for Planning …
For many families, a hesitation in opening a 529 plan has been the concern that funds would be “trapped” if a child didn’t pursue college. The OBBBA changes ease this concern:
- Funds now apply to far more educational pathways.
- Adults can establish 529 accounts for themselves to pursue licenses, credentials, or continuing education.
- Accounts still have no expiration date and can be transferred to another beneficiary, and up to $35,000 may be rolled over into a Roth IRA for the beneficiary (subject to rules).
In short, 529 plans have evolved into education-for-life accounts, adaptable to a wide range of learning and career paths.
Advisor Note: If you’ve hesitated to establish a 529 because you weren’t sure how funds might be used, now is an excellent time to revisit the conversation. These accounts can serve children, grandchildren, or even yourself or your spouse as part of a life long education and wealth strategy.
