New changes will allow families to spend funds from popular college-savings accounts on a wider range of uses other than four-year degrees, including private K-12 tutoring, admissions tests, and workforce training.
The changes鈥攊ncluded in the 鈥淥ne Big, Beautiful Bill Act鈥� President Donald Trump signed July 4鈥攔eflect current trends in education debates. They come as Republican lawmakers have increasingly emphasized private school choice, and as lawmakers from both major parties push to strengthen workforce readiness efforts outside of four-year college degree programs.
The new changes 鈥渞ecognize how education is changing,鈥� said Martha Kortiak Mert, the chief operating officer of Saving for College, a website that compares 529 plans.
Here鈥檚 what you need to know.
What is a 529 plan?
A 529 plan, named for a section of the U.S. tax code is a state-approved, tax-advantaged investment account that families have traditionally used to save for their children鈥檚 college education. Like retirement plans, 529 account holders can direct their funds to investment portfolios with varying levels of risk.
Earnings build up tax free, and withdrawals are exempt from taxes if they are spent on allowable uses. Some states also offer additional perks, like tax credits, for families that maintain 529 plans.
Some families have been reluctant to open 529 plans in the past out of fear that they wouldn鈥檛 be able to reap the benefits if their children didn鈥檛 attend college, Mert said.
鈥淭he more flexible [529 plans] become, the more likely parents are to open them and not be worried about whether they will use the funds or not,鈥� she said.
Can 529 plans can be used for K-12 expenses?
Yes. Through a 2017 tax bill, Congress expanded the use of 529 plans to K-12 by allowing families in participating states to use up to $10,000 a year on private school tuition.
State plans vary, and to allow tax-free withdrawals for K-12 expenses, according to a tracker maintained by College Savings.
The changes in the recently passed budget reconciliation bill will allow families in participating states to spend even more on K-12. Starting in January, that cap will increase to $20,000. The July bill also expanded the allowable uses for those funds to include tuition, curriculum, instructional materials, private tutoring, fees for Advanced Placement or college-admissions tests, and therapies for students with disabilities.
Contributions to 529 plans will have less time to accrue earnings if families spend them on K-12, Mert cautioned. Families planning to withdraw earnings sooner may want to take a more conservative approach to investing than families who plan to save longer term for college, she said.
Separate from the 529 provisions, the bill also created a private school scholarship program through which individual taxpayers can receive dollar-for-dollar tax credits for donations to organizations that grant the scholarships. States are still weighing whether to participate in the program, the first federally created one that covers the entire nation.
Can 529 plans be used for career training?
Yes. The 鈥淥ne Big, Beautiful Bill Act鈥� expanded allowable higher education uses to include postsecondary credential programs.
Such programs may be necessary to fill the growing need for 鈥渕iddle skills鈥� employees, like electricians and mechanics, who do not require four-year college degrees, advocates have said.
Qualifying programs include those offered by any higher education institution that is eligible for federal financial aid, state-approved workforce-development programs, and federally approved apprenticeship programs. The funds can also be spent on postsecondary expenses like licensing fees, continuing education, books and learning materials, or preparation for graduate school admissions tests.
