The 529 Plan Reboot: How New Rules Make It a Super-Tool for Your Family

As we plan for our financial futures, one of the greatest gifts many of us want to give our children and grandchildren is the gift of education. For years, the 529 plan has been a go-to tool for college savings, but I’m excited to share that recent legislation—the One Big Beautiful Bill Act (OBBBA)—has made this powerful tool even more flexible and useful for families.

If you’ve ever wondered if a 529 plan was the right fit for your family, or if you already have one, these changes are definitely worth a closer look.

What is a 529 Plan, Exactly?

Before we dive into the new rules, let’s do a quick refresher. Think of a 529 plan as a special savings account designed to help pay for education. There are generally two types:

• Prepaid Tuition Plans: These let you lock in today’s tuition rates by purchasing college credits for future use at participating schools.

• 529 Savings Plans: This is the more common and flexible option we’ll focus on. With these plans, you contribute money that can be invested in various options like stocks, bonds, and mutual funds.

The real magic of a 529 savings plan lies in the tax benefits. While your contributions may not be deductible on your federal return, the money in the account grows completely tax-free. When you withdraw it for qualified education expenses, those withdrawals are also tax-free. Plus, many states offer a state income tax deduction or credit for your contributions, which is another great perk.

Despite these advantages, it's surprising how few families use them. A recent Vanguard survey showed that over two-thirds of parents use regular checking or savings accounts for education savings, with only about 10% of parents taking advantage of 529 plans. I believe the new changes in the OBBBA might just encourage more families to see their incredible potential.

A Major Upgrade: How the OBBBA Expands 529 Plan Power

The OBBBA has essentially expanded the definition of "qualified education expenses," giving you far more options for using the money you’ve worked so hard to save.

1. More Flexibility for K-12 Education

Previously, you could take out up to $10,000 per year tax-free for K-12 tuition at public, private, or religious schools. The new law expands this significantly. Starting now, qualified K-12 expenses also include:

• Curricular materials, books, and other instructional materials.

• Online educational materials.

• Tuition for tutoring or special educational classes.

• Fees for standardized tests like the ACT or SAT.

• Educational therapies for students with disabilities.

And there’s more good news: starting January 1, 2026, the annual withdrawal limit for all these K-12 expenses will double from $10,000 to $20,000 per year.

2. Support for Skilled Trades and Career Credentials

This is one of the most practical and exciting updates. We know that a traditional four-year college degree isn't the only path to a successful career. The OBBBA acknowledges this by allowing 529 funds to be used for a much wider range of job training and credentialing programs.

Qualified withdrawals now include costs for:

• Skilled trades and vocational programs, such as certifications for HVAC, welding, plumbing, cosmetology, or getting a commercial driver's license.

• Professional license and certification fees, like preparing for and taking the CPA exam or the bar exam.

• Required continuing education to maintain licenses for professionals like nurses, teachers, and real estate agents.

• Associated books, supplies, and equipment for these programs.

This change makes the 529 plan a fantastic tool to support a grandchild’s dream, whether that’s becoming an electrician or an accountant.

3. A Permanent Bridge to ABLE Accounts

For families who have a loved one with a disability, this change provides incredible peace of mind. An ABLE (Achieving a Better Life Experience) account is a tax-advantaged savings account for individuals with disabilities that doesn't affect their eligibility for most need-based federal benefits.

A previous rule allowing families to roll over unused 529 funds to an ABLE account for the same beneficiary was set to expire. The OBBBA has now made this provision permanent. This means if a child’s educational path changes due to a disability, the education savings can be repurposed tax-free to cover qualified disability-related expenses, offering crucial financial flexibility.

A Quick Word on Contribution Rules

Unlike an IRA, there is no strict federal annual contribution limit for a 529 plan. However, it’s important to remember that contributions are considered gifts for tax purposes.

For 2025, the annual gift tax exclusion is $19,000 per person. This means you can contribute up to $19,000 for a grandchild without any gift tax paperwork. A married couple can contribute up to $38,000 together.

There's also a powerful strategy often called superfunding. This special rule allows you to make five years' worth of contributions at once—up to $95,000 in 2025—without triggering the gift tax, as long as you don't make any more contributions for that beneficiary in the five-year period. This can be a fantastic way for grandparents to jumpstart an education fund.

Is It Time to Revisit Your Education Strategy?

With these new, flexible rules, the 529 plan is more powerful than ever. It's no longer just a "college" savings plan; it's a comprehensive education and career-training plan.

Whether you're helping a grandchild with private school, supporting a career in the skilled trades, or simply planning for the future, a 529 plan offers tax-advantaged options to help you reach those goals.

If you have questions about how these changes might fit into your family's financial picture, please don't hesitate to reach out. I'm here to help you navigate the options and tailor a plan that works for you.