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New legislation has significantly broadened the scope of qualified expenses for 529 education savings plans, offering families and individuals unprecedented flexibility in funding educational and career development endeavors. As announced by Squawk Box, "Starting today, you can use a 529 savings plan in new ways." These expansions build upon previous reforms, transforming 529 plans into more versatile financial tools.
A key development allows for the tax-free rollover of unused 529 funds into a Roth IRA. Under provisions of the SECURE 2.0 Act, which took effect on January 1, 2024, beneficiaries can transfer up to a lifetime maximum of $35,000 from a 529 plan to their Roth IRA. This option is available provided the 529 account has been open for at least 15 years, and contributions made within the last five years, along with their associated earnings, are not eligible for rollover. Annual rollover amounts are also subject to the prevailing Roth IRA contribution limits.
Further enhancements were introduced by the "One Big Beautiful Bill Act" (OBBBA), signed into law on July 4, 2025. This act expanded eligible expenses to include a broader range of vocational and professional development programs. Funds can now cover costs associated with credentialing, vocational training, professional licensing programs (including exam preparation), and required continuing education courses across various industries. This change acknowledges the evolving landscape of education and workforce training beyond traditional four-year degrees.
Additionally, the OBBBA significantly expanded the use of 529 funds for K-12 education expenses. Effective in 2026, the annual limit for K-12 tuition and related expenses has increased to $20,000 per student. This now encompasses costs such as tutoring, standardized test preparation (e.g., ACT, SAT, AP exams), and educational therapy, providing more comprehensive support for elementary and secondary schooling. These legislative changes aim to make 529 plans a more adaptable and appealing option for diverse educational needs throughout a person's life.
