American families have long relied on 529 plans to save for their children’s college education. Now that the One Big Beautiful Bill (OBBB) has been signed into law, significant updates are set to launch. Whether you’re just starting a 529 or already have one in place, these new rules could impact your strategy.

The 529 Plan: A Quick Review

A 529 is a tax-advantaged savings account for education that offers tax-free growth and tax-free withdrawals for qualified expenses. When the funds are used for costs like tuition, books, or housing, you don’t pay federal taxes on those withdrawals. These accounts have become so popular that by the end of 2024, American families had saved more than $525 billion in 529 plans.

Key Enhancements Under the One Big Beautiful Bill

Here’s a closer look at the biggest updates under the OBBB and what they mean for education savings moving forward.

1. Increased K-12 Withdrawal Limit. Starting in 2026, families will be able to use up to $20,000 a year from a 529 plan for K-12 expenses. This is double the current $10,000 cap. However, not every state follows the federal rules. For instance, in Indiana, you’ll still get the 20% tax credit and contributions (up to $1,500 per year). Still, local lawmakers haven’t confirmed if the new federal rules will count as tax-free at the state level.
2. Expanded K-12 qualified expenses. The law extends the definition of “qualified expenses” beyond tuition. 529s may now cover curriculum materials, books, online educational materials, tutoring/classes outside the home, standardized testing fees, dual-enrollment fees for college classes taken in high school, and specific therapies for students with disabilities.
3. Additional qualified higher-ed expenses. The new law allows families to use 529 funds for more than just college expenses. It now covers certain job training programs, professional certificates, and licensing exams. That means whether a student is pursuing an undergraduate degree or choosing a career path that requires certification, a 529 can help pay for it.
4. ABLE account flexibility is made permanent. The OBBB permanently allows account holders to move money from a 529 plan into an ABLE account without triggering taxes. It also keeps the expanded “ABLE-to-Work” rules in place, which allow individuals with disabilities who are employed to contribute extra to their ABLE account. For families who want to save for both education and disability-related expenses, this helps eliminate worries about losing tax benefits.
5. New Trump accounts launching in 2026. It’s not a 529 plan, but beginning next year, families will have access to a new savings option called Trump accounts. As part of the program, the federal government will provide a $1,000 deposit for U.S. children born between January 1, 2025 and January 1, 2029. These accounts aim to position children for long-term financial security, and parents or guardians of children under age 8 can contribute up to $5,000 per year.

The funds in a Trump account, which grow tax-deferred until the account holder reaches the age of 18, can be used for education, starting a business, or purchasing a first home. When the account holder reaches the age of 18, up to 50% of the funds can be tapped for withdrawal. After age 30, any remaining money may be withdrawn for any purpose. However, withdrawals used for non-qualified expenses before then will be taxed as regular income.

These 529 Rules Remain the Same

There is no change to the federal 529 contribution rules. These rules also remain unchanged:

• Tax treatment: Earnings remain tax-deferred and qualified withdrawals stay tax-free. Many states also offer deductions and credits for 529 contributions, but each state has varying rules.
• Roth IRA rollover: Beneficiaries can still roll up to a lifetime limit of $35,000 into their own Roth IRA, subject to annual Roth contribution limits.
• Non-qualified withdrawals: Withdrawals for non-qualified expenses will still trigger regular income taxes, along with a 10% penalty on earnings.

Why It’s Smart to Fund a 529 Plan

If you’ve paid down debt, set up an emergency fund, and have retirement savings in motion, beginning a 529 plan can be the next logical step when planning for your children’s financial future. With more options across education paths, the power of tax-free growth and tax-free qualified withdrawals, and the added coordination with ABLE accounts for special-needs planning, a 529 plan remains a highly effective and flexible way to save for education.