Section 529 plans are most commonly used as a tax-favored way to save and pay for college expenses. You might be reluctant to open a 529 account for your child because you’re not sure he or she will pursue a college degree. Or maybe you’re too focused on paying tuition for an expensive K-12 school to even think about college yet.
However, 529 accounts are surprisingly flexible — and they’ve become even more flexible under the One Bill Beautiful Bill Act (OBBBA) that was signed into law on July 4, 2025. Here’s how your family might be able to take advantage of this tax-saving tool.
How 529 Plans Work
A 529 account is set up under a state-sponsored plan. The balance in the account can grow federal-income-tax-deferred. And you can take federal-income-tax-free withdrawals to pay for qualified education expenses.
There are no tax-law limits on contributions to a 529 account, but you’ll use up part of your unified federal gift and estate tax exemption if you make contributions above the gift tax annual exclusion, which is annually adjusted for inflation ($19,000 for 2025). (Under the annual exclusion, you also can exclude certain gifts of up to the annual exclusion amount — twice that per recipient if your spouse elects to split the gift with you — without using up any of your gift and estate tax exemption.) The exemption is $13.99 million for 2025, and the OBBBA raises it to $15 million for 2026. If you’re married, your spouse has a separate exemption.
Under an exception, you can frontload a 529 account by contributing up to five times the annual federal gift tax exclusion in the first year. This exception allows you to contribute up to $95,000 for 2025 without tapping into your gift and estate tax exemption. If you’re married, your spouse can do the same.
Important: States have their own tax rules for 529 plans. Depending on where you live, you may qualify for a state tax benefit. Many states offer either state income tax deductions or state income tax credits for 529 plan contributions. Tax benefits are typically available if you invest in your home state’s plan. However, some states offer tax benefits for contributions to other states’ plans. State plans may also set their own contribution limits. Contact your tax advisor for the applicable rules in your state.
Qualified Education Expenses
Traditional college costs, such as tuition, mandatory fees, books, supplies, computer equipment, software, Internet service, and, generally, room and board, are qualified education expenses that can be covered with tax-free 529 account withdrawals. But tax-free withdrawals also can be used to pay for expenses required to enroll or attend any eligible postsecondary school, including:
- Accredited postsecondary public, nonprofit, or for-profit technical or vocational schools,
- Other types of postsecondary educational institutions that are eligible to participate in student aid programs administered by the U.S. Department of Education (DEA), and
- Certain institutions located outside the United States that are eligible to participate in student aid programs administered by the DEA.
In addition, you can use tax-free 529 account withdrawals to cover:
- Expenses for the beneficiary to attend a registered apprenticeship program, and
- Principal or interest payments on qualified education loans owed by the account beneficiary or a sibling of the account beneficiary, subject to a lifetime limit of $10,000.
Additionally, through 2025, you can take tax-free 529 account withdrawals to pay up to $10,000 of annual tuition for the beneficiary to attend a public, private or religious K-12 school.
OBBBA Enhancements
The new law expands the flexibility of 529 plans in several key areas:
K-12 educational expenses. For withdrawals taken after July 4, 2025, the definition of qualified K-12 expenses for tax-free withdrawal purposes has been expanded to include:
- Curriculum materials,
- Fees for nationally standardized tests,
- Books and other instructional materials,
- Dual-enrollment fees for college courses taken in high school,
- Online educational materials,
- Tutoring or educational classes taken outside the home, and
- Specialized strategies to support students with disabilities.
For 529 account withdrawals taken after 2025, the OBBBA allows tax-free treatment for up to $20,000 of annual distributions to cover qualifying expenses to enroll in or attend K-12 schools.
Post-secondary credentialing expenses. For 529 account withdrawals taken after July 4, 2025, the OBBBA allows tax-free treatment for amounts used to cover qualified post-secondary credentialing expenses. Such expenses include:
- Tuition, fees, books, supplies and equipment required for the enrollment or attendance of the beneficiary in a recognized postsecondary credential program,
- Fees for testing if such testing is required to obtain or maintain a recognized postsecondary credential, and
- Fees for continuing education if such education is required to maintain a recognized postsecondary credential.
This provision covers credentialing programs listed under a state or federal Workforce Innovation and Opportunity Act and in the U.S. Department of Veterans Affairs Web Enabled Approval Management System (WEAMS) database.
Examples of eligible credentialing programs are professional licensing programs (such as CPA preparatory courses or EMT certification programs), trade and technical credentials (such as commercial driver’s license training or cosmetology school), and continuing education requirements (such as continuing education units for teachers, real estate agents or insurance professionals).
Rollovers to ABLE accounts. The OBBBA makes permanent the ability to make tax-free 529 account rollovers into an ABLE account set up for the 529 account beneficiary or a family member of the 529 account beneficiary. (See “OBBBA Enhancements to ABLE Accounts” below.)
Overfunded 529 Accounts
If you contribute more to your child’s 529 account than he or she needs, you can repurpose the unused funds by changing the account beneficiary. This can be done tax-free if the new beneficiary has one of the following family relationships to the original beneficiary:
- Spouse,
- Sibling or step-sibling,
- First cousin or spouse of first cousin, or
- Brother-in-law or sister-in-law.
A provision of the SECURE 2.0 Act potentially allows tax-free rollovers of up to $35,000 from a beneficiary’s 529 account into a Roth IRA for the same beneficiary. However, this provision has several restrictions.
For More Information
From private K-12 schooling to college costs and other post-secondary training, educating your family can be expensive. You can help lower the costs with tax-advantaged education savings tools. The OBBBA liberalizes some of the rules for 529 plans, providing enhanced saving opportunities and tax benefits. Contact your tax and financial advisors to learn more.
OBBBA Enhancements to ABLE Accounts
Most states offer programs that allow you to establish a tax-favored account to cover the qualified expenses of a family member with a disability. These programs were authorized under the Achieving a Better Life Experience (ABLE) Act of 2014, and the One Big Beautiful Bill Act (OBBBA) sweetens the deal.
An ABLE account must be set up under a qualified ABLE program that’s established and maintained by a state, state agency or instrumentality that meets tax-law requirements that are similar to the requirements for Section 529 plans. You can establish an ABLE account under any state’s program, regardless of where the beneficiary lives. The designated beneficiary of an ABLE account is defined as an eligible individual who’s deemed to be the account owner. An eligible individual can have only one ABLE account established on his or her behalf.
An individual is eligible for a tax year if:
A disability certification for the individual has been filed with the IRS for the year, or
The individual is entitled to benefits for the year based on blindness or disability under the Social Security disability insurance program or the Supplemental Security Income program, and that blindness or disability occurred before the individual is age 26.
Important: Under a provision in SECURE 2.0, the age before which blindness or disability must have occurred for ABLE account eligibility will increase to 46 starting in 2026.
Each year, you can contribute to an ABLE account up to the amount of the federal gift tax annual exclusion ($19,000 for 2025). Under the Tax Cuts and Jobs Act, after the general annual contribution limit is reached, an ABLE account beneficiary can potentially contribute an additional amount. The additional contribution is based on the applicable federal poverty line for a one-person household or the beneficiary’s compensation for the contribution year. The ability to make additional contributions was scheduled to expire at the end of 2025, but the OBBBA makes it permanent.
The new law also makes permanent the inclusion of ABLE account contributions as eligible contributions for purposes of the saver’s credit. Starting in 2027, only ABLE account contributions will be eligible saver’s credit contributions. Before 2027, certain retirement account contributions also count as eligible saver’s credit contributions. Under the OBBBA, the maximum saver’s credit increases from $2,000 to $2,100 after 2026.
PKS & Company, P. A. is a full service accounting firm with offices in Salisbury, Ocean City and Lewes that provides traditional accounting services as well as specialized services in the areas of retirement plan audits and administration, medical practice consulting, estate and trust services, fraud and forensic services and payroll services and offers financial planning and investments through PKS Investment Advisors LLC.
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