Background Discussion

Qualified Tuition (529) Plans were established in 1996 to provide families with tax-advantaged savings accounts for college.  In addition to a possible state tax deduction for the contribution, the earnings grow tax free, and withdrawals are also tax free if used for qualified expenses.  Originally, the distributions could only be used for tuition and fees, but further legislation expanded qualified expenses to include books and equipment, room and board (if enrolled at least half time), internet service, and principal and interest payments on qualified student loans. 

Summary of OBBB Act and SECURE 2.0 Changes

The OBBB Act and SECURE 2.0 further expands the flexibility of the 529 program.  Congress passed several changes into law, which take effect either immediately on July 4, 2025, or on January 1, 2026, depending on the change.

Effective July 4^th the OBBB Act expands qualified expenses to include expenses related to obtaining or maintaining a recognized post-secondary credential.  Related education programs, exam fees, and continuing education are included. 

Effective January 1, 2026, the OBBB Act raises the limit of distributions that can be used for K-12 education expenses to $20,000.  It also expands the list of qualified expenses for K-12 education to include:

• Purchasing a curriculum and curricular materials including online educational materials, books, and instructional supplies.
• Tutoring and classes if:
  • Tutor is not related to the student and
  • Tutor is licensed as a teacher, has taught in eligible schools, or is a subject matter expert.
• Fees for nationally standardized norm-referenced tests such as AP exams, and the SAT.
• Fees for dual enrollment programs.
• Educational therapies provided by a certified provider.

Up to $35,000 in unused 529 funds can be rolled into a Roth IRA for the beneficiary, provided certain conditions are met, such as adherence to annual Roth IRA contribution limits. 

Taxpayers should consult with their tax advisor to determine if they would benefit from the new expanded flexibility of 529 plans.