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The new tax legislation under President Trump is set to bring some substantial changes to 529 education savings plans, offering parents greater flexibility in how they can use the funds saved for their children’s educational expenses — especially when it comes to K-12 education.
Understanding 529 Plans:
A 529 plan allows anyone — not just parents — to set aside money in a tax-advantaged investment account for educational expenses. These plans are designed to help pay for qualified educational costs, with the added benefit that the earnings are tax-free if the money is used for approved expenses.
Traditionally, 529 plans have been viewed primarily as a vehicle for saving for college education. However, recent tax changes have made these plans more useful for families with children at all levels of education.
New Changes for K-12 Education:
The major change in the 2025 tax bill increases the amount that can be withdrawn for K-12 expenses. Previously, parents could withdraw up to $10,000 per year to pay for K-12 tuition costs. Under the new law, this amount has increased to $20,000 annually. Furthermore, the definition of “qualified expenses” for K-12 education has been broadened to include non-tuition items such as:
- Books
- Tutoring
- Standardized testing fees
- Educational therapies for children with disabilities
This change significantly boosts the flexibility of 529 plans, making them a much more versatile tool for parents not just saving for college but for pre-college educational needs as well.
Expanded Uses Beyond Education:
In addition to K-12 expenses, the new tax bill also allows for the use of 529 funds for certain professional credentialing fees. For instance, CPA exams and licensing costs can now be covered by 529 plans. This expands the utility of 529 plans, making them more than just college savings tools — they are now an option for lifelong education and training.
Will the Changes Help All Families?
While these changes significantly benefit middle- and upper-income families, lower-income families may not reap as many rewards from the changes to 529 plans. According to Patricia McCoy, a law professor at Boston College, 529 plans tend to be used predominantly by higher-income households as tax shelters. Many lower-income families, McCoy points out, are more likely to benefit from programs like Pell Grants rather than the 529 plans.
Despite the extended benefits, lower-income families may not be in a position to contribute to a 529 plan, limiting their access to these new opportunities.
Introduction of Trump Accounts:
In addition to the changes in 529 plans, the new tax bill introduces a Trump account, a new tax-advantaged investment account for children. This type of account must be established before a child turns 18 and cannot be accessed until the child reaches that age.
Essentially, the Trump account functions like an IRA for kids. The funds grow tax-deferred and can be withdrawn without penalty for qualified expenses such as:
- College tuition
- First-time home purchases (up to $10,000)
There is a $5,000 annual contribution limit for these accounts, but the government will contribute $1,000 as part of a pilot program for children born between December 31, 2024, and January 1, 2029.
Which Savings Vehicle is Best?
Despite the new Trump accounts, 529 plans remain the gold standard for saving for educational expenses. As Andy Whitehair, a director with Baaker Tilly, pointed out, 529 plans remain the most efficient way to save for education. With tax-free withdrawals for qualified educational expenses, 529 plans offer unparalleled benefits for families looking to save for their children’s education at any level.
“A 529 plan is still going to be the gold standard,” Whitehair said. “If your sole goal is to save for education, any of the funds that come out of the 529 plan — all the income that you’ve earned — if you’re using it for qualified education expenses, it’s going to come out tax-free.”
Conclusion:
While the new tax bill introduces a range of enhancements to 529 plans and a new option with Trump accounts, the 529 plan continues to be the most effective way for families to save for education. With expanded uses for K-12 education and beyond, these changes represent a significant step forward in improving educational savings options for American families. However, it’s essential to consider the economic reality that lower-income families may not have equal access to these opportunities.
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