A new school year is officially in full swing and seems to arrive earlier every year. Whether you're funding private school tuition for your children or helping save for college, vocational training, or credentialing programs for children and grandchildren, understanding how 529 plans work can help you determine whether they fit into your family's education funding strategy. 

Prior to the passage of the One Big Beautiful Bill Act (OBBBA) in July 2025, 529 plans were generally limited to annual K-12 distributions of up to $10,000 per beneficiary for tuition expenses only. These funds could not be used for many other educational costs, such as curriculum materials, tutoring, or testing fees. For many families, this limit covered only a portion of the total cost of a private education. 

The OBBBA significantly expanded the flexibility of 529 plans. Effective January 1, 2026, the annual limit for qualified K-12 expenses increased from $10,000 to $20,000 per beneficiary. In addition to tuition, 529 funds can now be used for qualified expenses such as curriculum and instructional materials, books, online educational resources, tutoring, standardized testing fees, dual-enrollment course fees, and certain educational therapies for students with disabilities. These changes allow families to utilize 529 plans throughout a student's educational journey rather than solely for tuition payments. 

It is also important to understand that college is no longer the only educational path supported by a 529 account. Qualified distributions may be used for eligible educational institutions, including many colleges, universities, vocational schools, apprenticeship programs, and approved credentialing programs that meet federal requirements. While many eligible institutions participate in federal Title IV student aid programs, families should verify eligibility for any specific institution or program before making withdrawals. This flexibility allows a 529 plan to adapt as a beneficiary's educational and career goals evolve.  

Additionally, 529 plans can help borrowers manage student loan debt. The SECURE Act permits up to $10,000 in lifetime distributions per beneficiary to be used toward qualified student loan repayment. While the limit is capped, this provision can provide meaningful assistance for graduates entering the workforce with educational debt.  

One concern families often have is what happens if a student earns scholarships. Fortunately, 529 plans offer flexibility in this situation as well. If a beneficiary receives a scholarship, account owners may withdraw an amount equal to the scholarship without incurring the usual 10% federal penalty on non-qualified withdrawals. However, any earnings included in the withdrawal may still be subject to federal and, in some cases, state income taxes. 

The OBBBA also expanded qualified expenses to include certain postsecondary credentialing and licensing programs. Eligible costs may include tuition, books, supplies, equipment, examination fees, licensing or certification testing fees, and continuing education requirements necessary to earn or maintain a recognized credential. Examples may include qualifying professional certifications, workforce-development credentials, and licensing programs that meet the federal definition of an approved postsecondary credential. As education continues to evolve beyond the traditional four-year degree, 529 plans can play an increasingly valuable role in supporting career-focused training.  

Another significant enhancement to 529 plans is the Roth IRA rollover option. Beginning in 2024, qualifying beneficiaries may roll unused 529 assets into their Roth IRA without taxes or penalties, provided all requirements are met. Among other requirements, the 529 account must have been open for at least 15 years, the beneficiary must have sufficient earned income, annual Roth IRA contribution limits apply, contributions and associated earnings from the previous five years are generally ineligible for rollover, and lifetime rollovers are capped at $35,000 per beneficiary. For families who accumulate excess education savings, this provision can provide an excellent opportunity to help jump-start a beneficiary's retirement savings.  

Ownership of a 529 account is another important consideration, particularly when applying for financial aid through FAFSA. Student-owned assets are generally assessed at a higher rate in the federal financial aid formula than parent-owned assets. Student assets may be assessed at up to 20%, while parental assets are assessed at a maximum rate of 5.64%. Grandparent-owned 529 plans can provide additional advantages. Under current FAFSA rules, grandparent-owned 529 accounts are not reported as student assets, and distributions from those accounts are no longer treated as student income for federal financial aid purposes. As a result, grandparents may be able to help fund education expenses without negatively affecting a student's federal aid eligibility.  

Over the years, 529 plans have become one of the most popular and versatile education savings vehicles available. With expanded qualified expenses, support for vocational and credentialing programs, student loan repayment options, and Roth IRA rollover opportunities, today's 529 plans offer flexibility that extends well beyond traditional college funding. 

If you'd like to learn more about how a 529 plan may fit into your family's financial strategy, speak with a member of our team. We'd be happy to answer your questions and help you explore your options.