Working Families Tax Cut Makes 529 Plans More Powerful

Congress quietly delivered a major upgrade for families saving for education. The new tax law significantly expands how 529 plans can be used, making them more flexible, more practical, and better aligned with how students actually learn and train today. For families with children, or those planning ahead, these changes materially improve the value of saving through a 529 plan.

What a 529 Plan Does

A 529 plan is a tax-advantaged savings account designed to help families pay for education expenses. It offers three core benefits: contributions grow tax free, withdrawals are tax free when used for qualified education expenses, and many states provide a tax deduction or credit for contributing.

Until now, however, the usefulness of 529 plans was limited by narrow definitions of what counted as a qualified expense. The new law expands those definitions in meaningful ways.

Expanded K-12 Education Expenses

The law broadens the definition of qualified education expenses for elementary and secondary students, whether they attend public or private school. Families can now use 529 funds for a wider range of education-related costs that reflect the reality of modern schooling.

Newly eligible expenses now include:

• Curriculum materials

• Standardized test fees, including the SAT

• Books

• Dual-enrollment college courses

• Online educational materials

• Academic tutoring

  
  

These expenses did not qualify under prior law. Their inclusion recognizes that education costs extend well beyond tuition alone and that families should be able to use their own savings flexibly to meet those needs.

Workforce and Credentialing Programs Now Qualify

The most significant reform is the expansion beyond traditional college education. Under the new law, 529 plans can now be used for qualified postsecondary credentialing expenses, including tuition, fees, and testing costs for certificates, diplomas, and apprenticeship programs, as long as the credential is recognized as eligible.

A student does not need to attend a four-year college for a family to benefit from a 529 plan. Funds can now be used for vocational and technical programs such as HVAC certification, cosmetology school, EMT training, and other career-focused pathways.

This change directly addresses a long-standing concern among families. Many hesitated to contribute to a 529 plan out of fear that their child might not attend college. Under the new law, that concern largely disappears.

Higher K-12 Withdrawal Limits

Previously, families could withdraw up to $10,000 per year from a 529 plan for elementary or secondary education expenses. The new law doubles that limit to $20,000 per year.

This increase allows families to access more tax-free savings to cover private school tuition and other eligible K-12 costs. The higher withdrawal limit applies to tax years beginning after December 31, 2025.

State Conformity Still Matters

Not all states automatically conform to federal tax changes. Some states may need to pass legislation to adopt the expanded K-12 expense definitions or the higher withdrawal limit.

If a state does not conform, withdrawals may still be taxable at the state level even if they remain tax free federally. Families should confirm their state’s rules before making withdrawals.

No Change to the Roth IRA Rollover Option

The law does not change the existing ability to roll up to $35,000 from a 529 plan into a Roth IRA. The account must still be open for at least 15 years, and contributions made within the last five years remain ineligible for rollover.

Even so, this option continues to help address concerns about overfunding a 529 plan and adds another layer of flexibility for long-term savers.

Bottom Line

These reforms make 529 plans more useful, more flexible, and more aligned with modern education and workforce needs. They support school choice, career training, and responsible saving without forcing students into a traditional college track.

That is a meaningful improvement for families.