Since their establishment in 1996, 529 education savings plans have accumulated some $526 billion in assets. Used by just over 30% of families with college-aged students, these plans, administered by the various states, allow funds to accumulate tax-deferred until needed for qualified educational expenses. Distributions from the plans used to pay qualified expenses are not considered as taxable income making the growth and earnings tax-free. Since their original creation, additional features have been added, such as a 2017 provision allowing funds to be used to pay tuition for private K–12 education, in addition to being used for college funding.
Now, with the passage of the One Big Beautiful Bill Act (OBBBA) earlier this year, 529 plans have received a whole new round of enhancements that could make them even more helpful for families that are trying to save for future educational expenses.
Increased Limit for K–12 Withdrawals
Among the expanded definitions of expenses that qualify for tax-free withdrawals, OBBBA increased the allowable amount for private K–12 expenses to $20,000 per year, up from the previous limit of $10,000.
Expanded Expense Definitions
The law also broadens the types of expenses that come under the umbrella of qualification. For example, in addition to tuition for private K–12 schools, plan owners may now also use funds from the plan to pay for curriculum materials, fees for standardized testing, books and other instructional materials, dual-enrollment fees for college-credit courses, online educational materials, tutoring, and other specialized educational support strategies.
Additional Qualified Expenses for Higher Education and Professional Accreditation
Funds may now be withdrawn on a tax-free basis from 529 plans to pay for certain programs that prepare students for industry-recognized licensing exams, for Workforce Innovation and Opportunity Act programs, certain benefits available through the Veterans Administration, and for certain required continuing education fees.
ABLE Accounts and 529 Rollovers
Tax-advantaged accounts for persons with certain disabilities established by the Achieving a Better Life Experience (ABLE) act, which were formerly set to expire at the end of 2025, have been made permanently available by OBBBA. In addition, the new law enables tax-free rollovers from 529 plans to ABLE accounts.
Many other provisions of 529 plans remain as before, including the annual state tax benefits set by each state. Also, plan owners retain the option to roll over unused balances in 529 plans to Roth IRAs, subject to a lifetime limit of $35,000 and annual Roth contribution limits. Special note that the account must be opened for 15+ years, the rollover funds have to be in the account for 5+ years, and the 529 beneficiary must be the same as the ROTH IRA account owner.
New Children’s Savings Account
As part of OBBBA, a new tax-advantaged savings account for children, sometimes called a “Trump Account” or a “MAGA Account,” was established. Available to taxpayers at any income level, the account allows deposits of up to $5,000 per year and is not subject to taxation on its growth. Additionally, children born 2025–2028 qualify for a $1,000 “seed deposit” into the account, courtesy of the federal government. Funds may be withdrawn when the child reaches age 18 but may be left on deposit indefinitely; there are currently no required minimum distributions (RMDs) associated with the account. While this is not a 529 plan, it is certainly worth consideration for parents and grandparents who want to give the next generation a boost as they enter the adult years. There are a number of pros and cons to the different savings vehicles for children that should be carefully considered when making your choice.
Your advisor at The Planning Center is an excellent resource for additional information about 529 plans and other education funding tools. You can find out more by reading our recent article, “Your Best Plan for College Funding: Get Started Early.”
