The recently passed One Big Beautiful Bill Act (OBBBA), along with the SECURE Act 2.0 of 2022, expands the utilization requirements of 529 plans. These new rules provide meaningful tax-saving opportunities for education-minded people.
A 529 plan is a college savings plan sponsored by a state or state agency that can be used for education costs like tuition, books and other qualifying expenses. There are no income or age restrictions to start a 529 plan.
Qualified Higher Education Expenses
To be tax-free, distributions from 529 plans must be used for qualified higher education expenses.
Historically, this has included the following:
- Tuition
- Fees
- Books
- Supplies and equipment required for enrollment or attendance at an eligible educational institution
The Secure Act 2.0 expanded this definition to include K-12 tuition and student loan repayments (capped at $10,000 for a lifetime).
OBBBA Changes
The OBBBA introduces the following changes to qualified higher education expenses:
- Expands the definition to include certain expenses associated with enrolling in educational institutions, no longer only tuition for K-12.
- Creates deductibility for credentialing expenses paid after July 4, 2025. These may include fees for testing and education to obtain or maintain a postsecondary credential (CPA, RN, JD, etc.). The additional expense eligibility increases the utility of these popular tax-saving vehicles.
Withdraw Limits and Opportunities
Beginning in 2026, the OBBBA increases the per-beneficiary annual distribution amount from $10,000 to $20,000. While this may reduce the likelihood of unused funds, it is typically not ideal to purposefully overfund a 529 plan. The Secure Act 2.0 introduced a Roth IRA rollover option, which can serve as a relief valve of sorts. The total rollovers are limited to a lifetime cap of $35,000 and are subject to the yearly Roth IRA contribution limits. This rollover opportunity is a great way to transfer unused funds while maintaining the tax advantages of the growth within the 529 plan account.
Want to learn more about how to optimize tax savings through 529 plans and other investment vehicles? We’re here to help! Contact your RKL advisor today.
