New 529 plan rules for 2026: Key changes under the One Big Beautiful Bill Act
- The One Big Beautiful Bill Act expands the flexibility and use of 529 plans, which are tax-advantaged savings plans used to cover educational expenses.
- Among the most significant changes is the increased annual withdrawal limit for qualified K–12 expenses from $10,000 to $20,000 for federal purposes.
- Other notable changes include the expansion of coverage to certain postsecondary credentials, as well as the permanent extension of ABLE account enhancements
Byline: Anna Banks
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces significant changes to 529 plans, expanding their flexibility and use. The new rules allow families and individuals to use 529 funds for a wider range of educational expenses and financial planning options, making these plans more versatile than ever before.
These updates directly impact students and their families by providing broader opportunities to support diverse educational paths and long-term financial goals. For those affected, understanding the OBBBA’s new 529 regulations is essential for maximizing the benefits of these plans.
What is a 529 plan?
A 529 plan is a tax-advantaged savings plan designed to help families prepare for future educational expenses. Contributions to a 529 plan grow tax-free, and withdrawals used for qualified education costs – such as tuition, fees and books – are also tax-free. Many states offer additional incentives, such as tax deductions or credits for contributions. It’s important to note that nonqualified withdrawals are subject to income tax and a 10% penalty on earnings.
A common way to fund 529 plans is with “annual exclusion” gifts. These are monetary gifts that add up to the annual exclusion, which is the total amount that anyone can give to another person in a given year without paying taxes on the gift (or, in many cases, filing a gift tax return). In 2026, the annual exclusion amount is $19,000 per person.
A 529 plan also allows for accelerated gifting. Individuals can front-load up to five years’ worth of annual exclusion gifts per beneficiary without incurring gift tax. In 2026, that would enable a single person to contribute up to $95,000 for each beneficiary at once, or a married couple up to $190,000.
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Pre-OBBBA 529 rules
Qualified expenses for 529 plans have generally included college, graduate and vocational school tuition and fees, books and school supplies, technology used for schoolwork, and campus food and meal plans, as well as certain room and board costs for students enrolled at least half time.
Prior to the OBBBA, 529 plans also allowed as qualified educational expenses up to $10,000 per year, per beneficiary to be withdrawn tax-free for K–12 tuition at public, private or religious schools.
Other plan rules include the ability for plan owners to change beneficiaries to another qualifying family member and to make investment changes up to twice per calendar year, with contributions growing tax-free as long as withdrawals are used for qualified expenses.
OBBBA changes to 529 plans
The OBBBA significantly expands the flexibility and utility of 529 plans, allowing families to cover a broader range of educational expenses, supporting students with disabilities and encouraging the pursuit of nontraditional and trade-focused educational paths. Notable changes include the following;
Expanded qualified K–12 expenses
Among the most significant changes is the increased withdrawal limit for K–12 expenses from $10,000 to $20,000 per year beginning in January 2026. The OBBBA also expands the list of qualified K–12 expenses. As of July 5, 2025, that list now includes the following:
- Expenses for curriculum materials, textbooks, instructional materials and online education materials.
- Costs for tutoring provided outside the home, if the tutor is unrelated to the student and meets specific qualifications.
- Fees for standardized tests, Advanced Placement exams and college admission exams.
- Dual enrollment fees for postsecondary programs (i.e., college courses taken while in high school).
- Educational therapy costs for students with disabilities, including occupational, behavioral, physical and speech-language therapies.
Note that some states don’t treat pre-college expenses as qualified, so withdrawals for those expenses could incur state income tax. Check with your tax professional.
Allowance of postsecondary credentials
Another important change already in effect is the expanded allowance of 529 funds to be used for qualified postsecondary credentialing expenses. As of July 5, 2025, families can use 529 savings for a broad range of programs, including certificates, degrees and industry certifications in fields such as welding, aviation mechanics and other skilled trades. Qualified expenses now cover tuition, fees, books, equipment and any costs required for enrolling in or maintaining a professional credential, including exam fees and continuing education.
This means 529 funds can be applied to preparation and exam fees for professional licenses and certifications – such as certified public accountant (CPA) exam prep and fees; bar exam review and registration; and licensing exams for careers in law, accounting and finance – as well as training for vocational careers like commercial driver’s license (CDL) training, plumbing, electrical work, heating, ventilation and air conditioning (HVAC) and cosmetology. To qualify, programs must typically be recognized under the Workforce Innovation and Opportunity Act (WIOA) or listed in the federal Web Enabled Approval Management System (WEAMS) database maintained by the U.S. Department of Veterans Affairs. Families should confirm their chosen program’s eligibility on their state’s WIOA list or the WEAMS database. These changes support individuals pursuing high-demand technical careers and alternative educational pathways.
Extension of ABLE account provisions
Lastly, the OBBBA includes the permanent extension of three provisions for Achieving a Better Life Experience (ABLE) accounts – which are savings accounts available to individuals with disabilities – that were set to expire at the end of 2025. These provisions are permanent 529-to-ABLE rollovers; a permanent extension of the “ABLE-to-Work” initiative, which allows working beneficiaries to contribute beyond standard limits; and a permanent extension of Saver’s Credit eligibility, providing essential tax benefits for lower-income savers.
The bottom line
The OBBBA has overhauled how 529 plans can be used, transforming them from traditional college savings plans into more versatile financial planning tools that support a wide range of educational and career paths. With expanded rules, families and individuals now have greater flexibility to use 529 funds for a wide range of needs. These changes make 529 plans more adaptable to various life stages and goals – and therefore more accessible and attractive to a broader population.
There are certain things for 529 plan holders, contributors and beneficiaries to keep in mind given the recent changes. The expanded application of 529 savings may require careful planning with personal legal and tax professionals to ensure individuals are maximizing their tax advantages and using the funds efficiently.
Overall, the OBBBA’s changes position 529 plans as powerful tools for lifelong learning and financial growth, but users should thoroughly understand the rules – and the potential trade-offs.
Ready to open a 529 plan?
Invest in a 529 plan with one of our advisors and get no upfront fees, so more of your money goes toward reaching your goals.
