Big Changes for 529 Plans: What the OBBBA Means for Your Education Savings

If you’ve been considering how to save for education—for your child, grandchild, or even for yourself—you’ll want to pay attention to the recent upgrades to the tax-favored savings tool known as a 529 Plan. With the passing of the One Big Beautiful Bill Act (OBBBA), there are several changes worth noting. As your CPA advisors, we thought it best to explain what’s new, what stays the same, and how it might affect your planning.

What’s Changed Under the OBBBA

Here’s where it gets interesting: the new law broadens what counts as a “qualified” expense and adds new flexibility:

Expanded K-12 Uses/Limitation

Beginning for withdrawals taken after July 4, 2025, more K-12 expenses qualify as eligible deductions under IRC 529: curriculum materials, books, online educational tools, tutoring, standardized test fees, dual-enrollment fees, and even specialized strategies for learners with disabilities. The previous annual limit of $10,000 for K-12 tuition has doubled to $20,000 per year per beneficiary for qualifying distributions after 2025.

Credentialing, Trade, and Continuing Education

529 plans traditionally have only included college or trade schools. With these newly implemented changes, the 529 Plan can now fund programs that lead to recognized post-secondary credentials. This encompasses professional licenses, technical training, certifications, and continuing education for licensed professionals. Some examples of these costs can include tuition, required fees, books, supplies, equipment, and testing fees.

529 to ABLE Rollovers Made Permanent

Another important change: the option to roll over funds from a 529 Plan into an ABLE account (for a beneficiary with disabilities) without tax penalty was made permanent. This change gives families greater flexibility when the beneficiary’s circumstances change.

Overfunded 529 Accounts

If your child’s 529 Plan has an overabundance of funds, those funds can now be repurposed by changing the account beneficiary. It’s a tax-free exchange if the new beneficiary is one of the following family members of the original beneficiary:

• Spouse
• First cousin or spouse of first cousin
• Sibling or step-sibling
• Brother-in-law or sister-in-law

What Remains the Same

While the law changes many rules, the core tax advantages stay consistent: the account grows tax deferred, qualified withdrawals remain federal tax free, and state tax incentives may still apply depending on your residence. Keep in mind that state‐by‐state rules vary even if the federal list of qualified expenses expands, your state may not have updated its own tax laws.

Why These Changes Matters for You and You Family

These education planning changes present new opportunities:

• For families with younger children: You may now begin saving with a plan that supports both K-12 and SOME post-secondary/trade education.
• For adult learners: If you or someone you’re advising is pursuing some kind of certification/licensing rather than a four-year degree, a 529 could be a useful vehicle.
• For families with a member who has a disability: The ability to roll funds into ABLE accounts gives a backup or alternate option for those funds.
• For overfunded accounts: If you find yourself with excess 529 funds for one beneficiary, you now have more ways to repurpose them (change beneficiary, use for some credentialing, or roll into ABLE where applicable).

Before You Act

• Check your state’s rules. Even though federal law allows these expansions, your state may have specific restrictions.
• Coordinate with other tax benefits. If you use 529 funds and claim a tax credit for the same educational expenses, you need to avoid “double-dipping.”
• Update your beneficiary strategy. If the original beneficiary might not use all the funds, think ahead about changing to a sibling or other eligible family member.
• Use it for career training too. Don’t assume the plan is only for “college” in the traditional sense anymore. Versatility is key.
• Document qualified expense use. Since the rules are more expansive, keep good records to show how distributions are used (especially for credentialing and K-12 items like tutoring or online materials).

The Bottom Line

These updates reflect a broader trend: education isn’t one-size-fits-all, so their savings options shouldn’t reflect that. The 529 Plan remains a very useful vehicle, and many previous restrictions are not as prevalent. The OBBBA provides more flexibility, more choices, and more ways to align real-life savings goals for your children’s future and education.

If you’d like to review your existing 529 Plan or explore how these changes impact your situation, we’d be happy to walk through a tailored strategy with you.