Section 529 of the IRS tax code establishes and defines Qualified Tuition Programs (QTPs) as tax-deductible education savings or prepaid tuition accounts. Hence the name 529 accounts. Most 529 plans are state-run, and each state has its own version of a 529 Education Savings Plans (ESA). There were 16.8 million 529 accounts in 2025 worth $508 billion, yielding an average account balance of $30,295. It is estimated that an average 529 account saves $6,844 in Federal capital gains taxes. Since 1996, 529 plans have been a key element of family savings plans for college.
A new set of rules for 529 plans was part of the 2025 One Big Beautiful Bill Act Law (the Law), which made them more flexible and attractive to families. From higher K-12 spending limits to a wider range of qualified expenses including tutoring, test fees, and vocational training, the Law gives 529 account-holders more ways to pay for post-secondary education with tax advantages. These changes will have a big impact on families saving for an education. The Law also updates IRA rollover rules to allow unused 529 funds to be moved into a retirement account for the beneficiary.
The new Law adds flexibility and utility to 529 accounts, allowing families to pay for a wider range of educational options while also reducing the risk of overfunding an account.
Primary Changes to 529’s in the Law
Under the new 529 rules, account-holders can increase their total annual K-12 withdrawal amount from $10,000 to $20,000 per student. It also expands the purposes for which families can use 529s. In addition to tuition and fees, account-holders can now withdraw 529 funds to pay for:
- Test fees for standardized college entry exams
- Private or religious school tuition
- Credentialing programs and vocational studies
- Structured homeschool curricula and instructional materials
- Academic tutoring and educational therapies
- Curriculum materials such as books and online education materials
- Support for diagnosed learning differences, including ADHD
The last category is expected to have a major impact on the 20% of children who have learning and attention disabilities. Families can now use 529 accounts for qualified tools and services that help with focus, executive functioning skills, and classroom engagement. Although limited services for students with ADHD have been available through public school programs, non-school programs such as therapy, specialized instruction, and coaching can cost families $15,000 annually. Families that have had to pay for these resources out of pocket may now get help from their tax-free 529 account.
New 529 Flexibility Features
The new 529 expansion will help answer long-standing questions about 529 accounts: What happens if a child does not go to college, or the funds go unused? New rules give families more flexibility to use 529 savings across a wider range of educational choices. For example, if a person takes $15,000 out of a 529, they could use $10,000 to pay for private religious education and $5,000 for tutoring and test fees. Another family could use the funds to help pay for a homeschooling program. People can also cover expenses for job training or licensing programs such as cosmetology, HVAC training, or EMT preparation.
The Law allows eligible 529 funds to rollover into a Roth IRA. People can rollover up to $35,000 in their lifetime, as long as the account has been open for at least 15 years. Because of the 15-year rule, opening early matters even if it’s only for $100. Many families open a 529 at birth to start the clock. However, overloading a 529 early can backfire.
The IRA rollover feature positions 529s as a tax-advantaged retirement savings tool that can supplement an IRA. Normally, Roth contributions come only from take-home pay.
State-Level 529 Plan Considerations
The new 529 rules are Federal, and not every state will automatically conform to them. The Law is a Federal tax package, meaning that qualifying expenses are Federal tax-deductible but not necessarily state tax-deductible.
Many states still treat K-12 withdrawals or therapy-related expenses as non-qualified for state tax purposes even though they are now qualified by the Federal government. Many states are in the process of aligning their 529 provisions with the new Federal rules. Until then, families should exercise caution regarding the tax rules in their state.
Updated 529 Plan vs. Brokerage Accounts
Below is an update of the comparison of 529 plans to brokerage accounts to reflect the new provisions in the Law.
A 529 is considered better if:
- The family is confident that funds will go to education or training
- The family seeks tax-free growth
- The family has a need to save for college, K–12, trade school, or a certification
- The family appreciates the potential for using the Roth rollover option
- The family’s state also provides tax savings to a 529 account-holder
The biggest advantage of a 529 is the tax advantage. If the family does not foresee much benefit from the absence of capital gains taxes on qualified withdrawals , a regular brokerage account may be preferable. If used correctly, no capital gains tax will result from a 529. The biggest disadvantage of a 529 is the 10% penalty for non-qualified withdrawals.
A regular brokerage account is considered better if:
- The family wants full flexibility and control over invested funds
- The family may later decide to spend the funds on non-education expenses
- The family is unsure if their child will want a post-secondary education
- The family is intending to continue to maximize their IRA’s
One disadvantage of a regular brokerage account is that account-holders must pay capital gains taxes when they withdraw profits from it, even if used for education.
Summary
Updates in the Law to 529 rules give families more control over how they save for education, which is beneficial since needs or career plans may change over time. The expanded list of qualifying expenses offers a way to support students of all types, including college-bound teens, young adults pursuing a trade, or students at private schools.
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