You’ve probably heard the buzz about the "One Big Beautiful Bill" (OBBBA) by now. It’s a massive piece of legislation, and if you’re trying to save for your kid’s future, the 529 plan updates are the part you actually need to care about.
Honestly, the old 529 rules were a bit of a straitjacket. You could save all this money, but if your kid didn’t go to a traditional four-year college, you were basically staring at a 10% penalty and a tax bill just to get your own money back.
Things changed fast.
The OBBBA, signed into law in mid-2025, flipped the script on how these accounts work. We aren't just talking about college anymore. We’re talking about K-12, trade schools, and even a weirdly specific path to retirement.
The $20,000 Jump You Might Have Missed
The biggest headline is the K-12 cap. For years, you could only pull out $10,000 a year to cover private school tuition. If you lived in a high-cost area or had two kids in private school, that $10,000 felt like a drop in the bucket.
Starting in the 2026 tax year, that annual limit for K-12 qualified withdrawals is doubling to $20,000 per student.
It’s a massive shift.
But here’s the kicker: it’s not just for tuition anymore. This is where most people trip up. In the past, if you bought a laptop or paid for a tutor for your third grader, you couldn't use 529 money for that. Now, as of July 2025, the definition of "qualified expenses" has exploded.
Basically, if it’s educational and for K-12, it might count. We’re talking:
- Standardized test fees (SAT, ACT, AP exams—those $100 fees add up).
- Curriculum materials and workbooks.
- Online learning platforms and subscriptions.
- Tutoring services, provided the tutor isn’t a relative and meets certain professional bars.
- Dual-enrollment fees for high schoolers taking college credits early.
There’s a lot of nuance here. For example, the tutoring change is huge for families dealing with learning differences. The law specifically mentions educational therapies for students with disabilities, including support for ADHD and speech-language therapy.
Turning Your 529 Into a Retirement Account?
Wait, what? Yeah, the SECURE 2.0 Act started this, but the new big beautiful bill 529 changes have solidified the "Roth IRA escape hatch."
Parents used to be terrified of "overfunding" a 529. "What if my kid gets a full-ride scholarship?" "What if they decide to become a traveling musician instead of an engineer?"
Now, you can roll over up to $35,000 (lifetime limit) from a 529 plan into a Roth IRA for the beneficiary.
It’s a great way to jumpstart a 22-year-old’s retirement, but don't think you can just dump money in today and move it tomorrow. The IRS has rules. Strict ones.
- The 529 account has to have been open for at least 15 years.
- You can’t roll over any contributions (or the earnings on those contributions) made in the last five years.
- The annual rollover is limited by the Roth IRA contribution limit for that year. In 2026, that’s $7,500.
So, if your kid has $35,000 left over, you’re looking at a five-year process to move it all over. It’s not an "instant" fix, but it's a hell of a lot better than paying a penalty.
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The "Trump Account" vs. The 529
There’s a new player in the room: the Trump Account (officially the Trump Child Savings Account). Since the OBBBA introduced these, I’ve had people ask if they should stop their 529 contributions.
Probably not.
Trump Accounts are more like "starter IRAs" for kids. If your kid was born between 2025 and 2028, the government puts in a $1,000 seed deposit. You can add up to $5,000 a year.
But—and this is a big "but"—you can’t touch that money until the kid is 18. And even then, it’s for retirement, not for 10th-grade tuition or a freshman dorm. 529 plans still reign supreme for education because of the massive contribution limits. You can "superfund" a 529 with up to $95,000 in a single year (using the five-year gift-tax averaging) as of 2026. You can't do that with the new child savings accounts.
Don't Get Blindsided by State Taxes
Here is the part where I have to be the bearer of bad news. Just because the federal government says "Sure, spend $20,000 on private school!" doesn't mean your state agrees.
Tax law is a patchwork quilt.
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Some states (looking at you, California and New York) are notorious for not "conforming" to federal 529 changes immediately. If you live in a state that doesn't recognize the expanded K-12 list or the Roth rollover, they might hit you with state income tax or "recapture" the tax breaks you took when you put the money in.
Before you pull out $15,000 for a private tutor and a new MacBook, check your specific state's 529 plan website. Honestly, it’s worth a ten-minute call to a CPA.
Apprenticeships and Trade Schools
One more thing. We need to stop calling these "college savings plans."
The big beautiful bill 529 changes make it clear: the trades are in. You can now use 529 funds for postsecondary credentialing programs.
If your kid wants to be a licensed electrician, a welder, or a commercial pilot, those certification fees, equipment costs, and books are now qualified. This even covers continuing education for people already in the workforce. If you're 40 and need a new professional license to get a promotion, you can technically use a 529 account (even one you open for yourself) to pay for it.
Actionable Next Steps
If you're looking at your 529 plan and wondering how to handle these 2026 shifts, here is what you should actually do:
- Audit your current balance. If you have a high-schooler and a massive surplus, start looking at the 15-year clock for a Roth IRA rollover. If the account was opened when they were a baby, you’re probably good to go.
- Track your K-12 spending now. Even if you don't use the $20,000 cap until next year, start saving receipts for tutoring or specialized therapies today. The documentation requirements are going to be tighter than for simple tuition.
- Coordinate with your state plan. Check if your state has "conformed" to the OBBBA changes. If they haven't, keep your withdrawals strictly for tuition to avoid a state tax headache.
- Consider "Superfunding" if you have a windfall. With the gift tax exclusion at $19,000 for 2026 ($38,000 for couples), you can move significant wealth out of your estate and into a tax-protected bucket for your grandkids using the 5-year election.
The 529 is no longer just a "university fund." It’s a career-spanning, multi-generational tax shield. Just make sure you read the fine print before you start moving the money around.