Among other things, OBBBA will increase the annual contribution limit for private school K–12 costs, expand the education expense categories that account funds can cover, and make permanent a 529 account rollover option designed to address the financial needs of disabled people. 

Here's a look at four key OBBBA provisions affecting 529 account holders:

1 Higher annual distribution cap for K–12 education costs—While 529 accounts are best known as tax-advantaged ways to save for the costs of four- or two-year colleges, account funds can also be used for K–12 tuition and related expenses at qualified private, public, or religious elementary and secondary schools, as well as other qualified education costs. As a result of OBBBA, a cap of $10,000 a year per child on account distributions for qualified expenses at these schools will increase to $20,000, effective in 2026. The doubling of the maximum amount that can be used to cover K–12 expenses gives families with children in eligible private, religious, or public schools greater flexibility to leverage the many potential advantages of opening a 529 account to support a child’s education.

2 Expanded list of qualified K–12 non-tuition education expenses—The definition of what constitutes a qualified education expense under 529 account rules has expanded since Congress created 529 plans in 1996, and the OBBBA further broadens the list of covered expenses. In addition to tuition and other expense categories previously covered, families can make 529 account withdrawals to cover the following qualified expenses, effective July 4, 2025:

·       Curriculum materials, including textbooks, workbooks, and digital learning tools

·       Fees to take nationally standardized tests such as the SAT and ACT

·       Tutoring costs, provided the tutor or instructor isn’t related to the student, is licensed as a teacher by a state, has taught at an eligible institution, and is a subject matter expert on the relevant subject   

·       Educational therapies for students with disabilities from a licensed or accredited provider; services can include occupational, behavioral, physical, and speech-language therapies

·       Dual-enrollment tuition for college-level courses taken in high school

3 Qualified expenses for credentialing, licensing, and continuing education—To enhance educational opportunities for workers in skilled trades and professions, OBBBA created a new category of qualified expenses covering workforce education programs and postsecondary credentialing expenses to obtain or maintain various trade and professional certifications. The costs can include tuition, exam fees, books, supplies, and equipment required for enrollment or attendance in these programs. Eligible programs may be listed under state Workforce Innovation and Opportunity Act directories or the Web Enabled Approval Management System of the Veterans Benefits Administration. This expense coverage expansion took effect with the law’s enactment on July 4, 2025.

4 529-to-ABLE account rollover option made permanent—To create more flexibility for families with disabled children, OBBBA will make permanent a provision allowing tax-free rollovers of funds held in 529 accounts to Achieving a Better Life Experience (ABLE) accounts. The provision allowing these transfers had previously been scheduled to expire December 31, 2025. Congress created ABLE accounts in 2014 to ease financial burdens for people with disabilities by making tax-free saving accounts available to cover qualified disability expenses. Distributions are tax free if used for qualified disability expenses.

What stays the same for 529 accounts

While OBBBA has enhanced the flexibility that 529 accounts offer, the vast majority of the rules governing their use remain unchanged. Among the key provisions:   

·       Tax features—Contributions are invested through a 529 plan and can potentially grow tax free.¹ As long as account funds are used for qualified expenses, your money isn't taxed when withdrawn; in addition, many states also offer a full or partial tax deduction or credit for your contributions.² (Withdrawals for non-qualified expenses continue to incur ordinary income tax, plus a 10% penalty on earnings.)

^·               Account flexibility—A 529 account can be opened with as little as $250. Most plans allow regular, automatic contributions from a bank account, and family members, friends, and others can make gifts into a 529 account. If a child doesn't need all of the funds or receives a scholarship, the beneficiary designation can be switched to another family member. In addition, 529 account holders can pay back up to $10,000 in student loans and can roll over up to $35,000 to a Roth IRA.³

·       Gift and estate tax benefits—Contributions to a 529 account are considered gifts for tax purposes. The annual gift tax exclusion—the amount you can gift to a loved one tax free without triggering federal gift taxes—for single filers is $19,000 in 2025; for married couples filing jointly, it’s $38,000. Moreover, single filers can gift as much as $95,000 per beneficiary to a 529 account in 2025 without triggering the gift tax if the contribution is frontloaded and treated as if it were spread over a five-year period. Married couples can gift $190,000 in 2025 using the five-year election option. ⁴  The amount contributed must be reported on IRS Form 709 for each of the five years.

Before investing, it’s advisable to check with a tax professional, estate planning attorney, and/or financial professional to help ensure that you understand the rules and risks involved and to see how a 529 account could fit into your overall financial plans.

1 State laws and treatment may vary.  Earnings on nonqualified distributions will be subjected to income taxes as well as a 10% federal penalty tax. Please speak with your tax professional for more information. 2 Consult your financial, tax, or other professional to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances. 3 Roth IRA rollovers are limited to the annual Roth maximum contribution limit and aggregate lifetime limit of $35,000. Other restrictions apply. Please consult your tax advisor for more information. 4 For 2025. The donor must elect that the gift be treated as having occurred over a five-year period in order for it to qualify for the federal gift tax exclusion. If additional gifts are made to the same beneficiary during this five-year period, a federal gift tax may apply. If the donor dies within this five-year period, a pro rata share will be included in the donor's estate for federal estate tax purposes. State gift and estate tax laws may vary.