For years, these accounts have been straightforward college savings vehicles: contributions grow tax-free, and withdrawals for qualified education expenses aren’t taxed. Tuition, room and board, maybe some books.
That’s all changed.
Recent federal legislation, specifically the SECURE 2.0 Act and the One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, has transformed 529 plans into something far more flexible. They’re no longer just college savings vehicles. They’re now tools for K–12 education, skilled trades, and professional certifications.
When reviewing a 529 plan, it’s important to consider not only the state tax treatment but also any associated fees and expenses. Availability of a state tax deduction will depend on your state of residence, as state tax laws and treatment may vary from federal tax laws. If you make a non-qualified distribution for something other than school-related expenses, earnings will be subject to income tax and a 10% federal penalty tax.
K–12 Education: Double the Flexibility
Starting with the 2026 tax year, the annual withdrawal limit for K–12 expenses doubles from $10,000 to $20,000 per student. But the OBBBA also broadened the definition of a “qualified expense” for younger students. We can now use 529 funds for:
- Tutoring services from licensed teachers or subject-matter experts
- Curriculum materials, including textbooks, workbooks, and online learning platforms
- Standardized testing fees for the SAT, ACT, AP exams, and other college entrance assessments
- Educational therapies for students with disabilities, such as occupational therapy or speech services
- Dual-enrollment tuition for college courses taken during high school
This expansion gives parents support well before the first college bill arrives.
Skilled Trades and Professional Credentials
Not every career path runs through a four-year university, and the new rules acknowledge that. The 529 now covers training and certification programs for skilled trades and professional licensing.
Qualified expenses include tuition, books, equipment, and exam fees for programs like:
- Commercial driver’s license (CDL) training
- HVAC, plumbing, electrical work, welding, or cosmetology
- Aviation mechanics and other technical certifications
This change reflects a growing recognition of vocational and technical education. If your child is drawn to the skilled trades or needs continuing education to maintain a professional credential, a 529 can help .
The 529-to-Roth IRA Rollover
One of the longstanding concerns we’ve heard about 529 plans has been the risk of overfunding. What happens if your child doesn’t go to college, or doesn’t use all the money we’ve saved?
The SECURE 2.0 Act addressed this by allowing up to $35,000 in unused 529 funds to be rolled over into a Roth IRA for the beneficiary—tax-free and penalty-free. The account must have been open for at least 15 years, and rollovers are subject to annual Roth IRA contribution limits ($7,500 in 2026). Contributions made within the last five years (and their earnings) aren’t eligible. Also, the original Roth IRA owner is not required to take minimum annual withdrawals.
This provision helps address some of the downside risk of saving too much. If your child receives scholarships, chooses a less expensive school, or takes a different path entirely, those unused funds can be moved.
Permanent Support for Families with Disabilities
The OBBBA also made permanent the ability to roll 529 funds into an ABLE account—a tax-advantaged savings vehicle for individuals with disabilities. Previously, this option was temporary. Now, families have ongoing flexibility to redirect education savings toward long-term care and quality-of-life expenses if a child doesn’t pursue traditional education.
What This Might Mean for Your Family
These changes are designed to make 529 plans more versatile than ever before. A 529 might be worth evaluating whether you’re saving for a private elementary school, a vocational certification, or a four-year degree:
- State tax rules vary. While the federal rules have expanded, your state may take time to align its own tax policy with the new $20,000 K-12 limit. Check with your tax, legal, and accounting professionals to see how the new 529 may apply in your situation.
- Superfunding still works. For 2026, you can contribute up to $95,000 in a single year ($19,000 annual gift exclusion × 5 years) without triggering gift tax consequences. Another strategy to review with your tax, legal, and accounting professionals, especially if you believe that’s a possibility for your family.
Aim for flexibility. If you’re not sure which education path your child will take, the expanded rules give you some more factors to consider.
Sources (Used throughout)
One Big Beautiful Bill Act (Public Law 119-21), July 2025
SECURE 2.0 Act of 2022 (Section 126), December 29, 2022
IRS Notice 2025-57, October 21, 2025
