During the 2023–24 academic year, college students and their families paid 48 percent of college costs, according to the Education Data Initiative. Meanwhile, 35 percent of families used a 529 college savings plan.
The 529 plan has been a convenient savings mechanism for years, but the One Big Beautiful Bill (OBBB) has provided enhancements that make it even more attractive. But how does the 529 plan work, and what advantages did the OBBB offer to parents and grandparents?
529 Plan Earnings Not Taxed
It’s important to save for education expenses, but under normal circumstances, any earnings generated by a traditional savings account are taxed.But with a 529 plan, earnings are not subject to federal tax and generally not subject to state tax when used for qualified expenses, according to the IRS. Contributions to a plan are not tax-deductible.
Anyone can be set up as a beneficiary to the plan. For example, you can set it up for a relative, a friend, or yourself. There are also no income restrictions. It doesn’t matter what your income is; as a contributor, you can set up a 529. The same goes for a plan’s recipient or beneficiary. They can receive the funds regardless of their income. You can also set up as many plans as you like.
You can only withdraw funds for qualified expenses. If an expense isn’t qualified, the plan holder is subject to taxes on the amount withdrawn and a 10 percent penalty, as Fidelity reports.
Contribution Limits
There are limits as to how much you can contribute to a 529 plan per year. If you exceed this limit, the overage will be subject to a gift tax. The limit for 2025, and in years past, is $14,000. The OBBB didn’t change this limit, but the withdrawal limit was changed for K–12 beneficiaries.Withdrawal Limit
A 529 plan holder can withdraw any amount from their plan for college, but only qualified distributions will be tax-free.But there was a restriction on withdrawals for K–12 tuition and fees. The limit was $10,000 per year. But the OBBB changed that limitation. Starting in tax year 2026, the new withdrawal ceiling is $20,000.
Qualified Expenses
More K–12 expenses are eligible for penalty-free withdrawals. Formerly, tuition and fees were considered a qualified expense. But distributions made after July 4, 2025, under the OBBB, can include these new qualified expenses:- curriculum materials
- tutoring (meeting program requirements)
- online learning subscriptions
- educational therapies for students with disabilities
- standardized test fees
- dual-enrollment tuition
So, take into account any assistance or scholarships your child has when determining how much to withdraw from a 529 plan.
529 Plan Use for Certifications
The OBBB now allows the 529 plan to be used for credentialing, licensing, and continuing education programs. These affect distributions made after July 4, 2025.The expansion includes preparation and exam fees for professional licenses, such as certified public accountant (CPA), bar exam, etc. But it also covers skilled trades certification, such as:
- commercial driver’s license (CDL)
- plumbing
- welding
- heating, ventilation, and air conditioning (HVAC)
- cosmetology
These programs must generally be listed in your state’s Workforce Innovation and Opportunity Act (WIOA) directory or the federal Web Enabled Approval Management System (WEAMS). The WEAMS is a central Veterans Administration database.
Rollover to ABLE Accounts
The OBBB made permanent a provision that allows families with children with disabilities to roll their 529 funds into an Achieving a Better Life Experience (ABLE) account. It was set to expire on Dec. 31.OBBB Trump Account
Trump accounts are a savings account available on behalf of children. American children born between 2025 and 2028 who have a Social Security number qualify for a one-time deposit of $1,000 from the federal government.Parents can contribute up to a combined $5,000 a year until the child turns 18. An employer can also contribute, but it’s capped at $2,500 per year per employee.
There’s no tax advantage for parents to contribute. The Trump account is effectively a combination of a traditional IRA, Roth IRA, and interest-bearing savings account, according to the Economic Policy Innovation Center.
How to Start a 529 Plan
You have two options if you want to open up a 529 Plan. States offer these plans. Here is a website that will let you access your state’s plan.You can also go to an investment firm like Fidelity, Vanguard, or Schwab.
Saving for Education
The OBBB made many economic changes. The expansion of the 529 plan made saving for education more accessible to a broader range of Americans.This is particularly true for K–12 education and work-training programs. It gave families more options for their education and careers.
The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
