Beyond College Savings: How OBBBA Expands the Power of 529 Plans

Key 529 plan changes under the ‘One Big Beautiful Bill Act’

H.R.1, formerly the “One Big Beautiful Bill Act” introduced meaningful, permanent enhancements to 529 education savings plans. These legislation changes provide families with greater control, flexibility, and tax efficiency in funding education across generations. More than technical updates, these reforms represent a new era of education and wealth planning, positioning 529 plans as versatile tools that can support evolving educational paths while reinforcing long-term estate and tax strategies.

529 Plans: Greater breadth, greater flexibility

The 529 plan has long been a go-to strategy for education funding. H.R.1 considerably improves the adaptability of 529 plans, establishing them as more effective instruments for both traditional and non-traditional educational planning. A primary income tax advantage of a 529 plan is that its earnings are exempt from federal and state income taxes when used to cover eligible K-12 or higher education expenses.

From an estate planning perspective, 529 contributions, when paired with the annual gift tax exclusion, allow families to shift substantial assets out of their taxable estates without using lifetime gift and estate exemptions (currently $15 million per individual).

What is new:

Annual K–12 withdrawal cap doubled: Starting in 2026, families may withdraw up to $20,000 per student annually for K–12 expenses.

Expanded qualified expenses for elementary and secondary education:

After July 4, 2025, 529 plans now cover the following:

• Tuition for public, private or religious elementary and secondary schools;
• Curriculum and curriculum materials;
• Books and other instructional materials;
• Online education materials;
• Tutoring services;
• Fees for standardized tests such as AP exams and college entrance exams;
• Dual-enrollment tuition for college coursework; and educational therapies for students with disabilities, such as speech therapies when provided by licensed or accredited professionals.

Expanded higher education and credentialing uses:

After July 4, 2025, qualified higher education expenses now include costs associated with recognized postsecondary credential programs, as defined by the U.S. Treasury in consultation with the Department of Labor. These include:

• Tuition, fees, books, supplies and equipment for enrollment in a recognized postsecondary credential program including registered apprenticeship programs;
• Fees for testing to obtain or maintain a recognized postsecondary credential such as the CPA exam;
• Continuing education expenses required to maintain such credentials.

Planning considerations for affluent families

Front-load for long-term flexibility:

• The annual gift tax exclusion for 2026 is $19,000 per beneficiary ($38,000 per beneficiary for married couples)
  • Families may also elect five-year front-loading, allowing a married couple to contribute up to $190,000 per beneficiary in a single year, without dipping into their estate lifetime exemption.

Leverage state tax benefits

• Many states offer income tax deductions or credits for 529 contributions.
• Be mindful that in some states, these benefits are calculated per plan rather than per beneficiary, creating opportunities for strategic structuring before significant K–12 withdrawals.

Align with career transitions

• Unused 529 funds can now be redirected toward professional development, retraining, or credential maintenance. A particularly valuable benefit for family members launching new ventures or changing careers.
• The plan owner retains control and may change beneficiaries without adverse income or gift tax consequences.

A broader role in multigenerational wealth planning

The updates to 529 plans reflect a policy shift toward permanence, portability, and personalization. For high-net-worth families, these accounts now offer expanded utility far beyond their original purpose.

By integrating these tools into a broader wealth strategy, families can:

• Enhance intergenerational planning
• Improve tax efficiency
• Support a wide spectrum of educational and professional goals

Your Keiter Opportunity Advisor can walk you through how these tools may align with your existing estate plans or education strategies.

Source:

H.R.1 – An act to provide for reconciliation pursuant to title II of H. Con. Res. 14.