When President Trump signed the “One Big Beautiful Bill Act” (OBBBA) into law on the Fourth of July, he introduced several key provisions that affect 529 education savings plans and other forms of savings for children. These changes aim to provide families with more flexibility and options than ever before.
For many, 529 plans were already a major piece of their education planning, offering tax-free growth and withdrawals for qualified education costs. With the cost of a four-year, in-state public degree now at approximately $120,000, and the average student graduating with about $39,000 in loan debt, any enhancements to these savings vehicles are a welcome development. The OBBBA not only expands 529 benefits but also introduces a brand-new savings tool:
The enhanced 529 plan
The OBBBA has brought several enhancements to 529 plans, expanding their utility far beyond traditional college savings.
- Increased kindergarten through 12th grade withdrawal limit: The new law doubles the annual withdrawal limit for elementary and secondary education expenses from $10,000 to $20,000 per year. This provides greater flexibility for families utilizing 529 funds for private school tuition or other K-12 costs.
- Expanded K-12 qualified expenses: The law broadens the definition of “qualified expenses” for K-12 education to include non-tuition costs. These now include curriculum materials, fees for nationally standardized tests, books, online educational materials, tutoring, dual-enrollment fees for college courses taken in high school and specialized strategies designed to support students with disabilities. It’s important to note that individual states may still need to pass legislation to align their state tax deductions with these expanded federal definitions.
- Expanded additional higher education uses: The OBBBA now allows for tax-free withdrawals for a wider range of postsecondary opportunities, including workforce development, on-the-job training and continuing education programs. This includes tuition, fees, books and supplies for programs listed under the Workforce Innovation and Opportunity Act or in the United States Department of Veterans Affairs WEAMS (Web Enabled Approval Management System) database, as well as programs that prepare students for industry-recognized licensing exams.
ABLE account flexibility becomes permanent
Previously, several key provisions of the Achieving a Better Life Experience (ABLE) Act were set to expire at the end of this year. The OBBBA makes these provisions permanent, providing long-term stability and greater planning opportunities for individuals with disabilities. This includes allowing for tax-free rollovers from 529 plans to ABLE accounts, as well as making the “ABLE-to-Work” contribution limit and the Saver’s Credit for ABLE contributions a permanent fixture.
The new Trump Savings Accounts program
While not an expansion of the 529 plan, the Trump Savings Accounts program, starting July 4, 2026, is a new savings vehicle introduced by the OBBBA. It has many rules like a traditional IRA (Individual Retirement Account), and when the child turns 18, the account actually becomes a traditional IRA.
The law calls for a one-time contribution of $1,000 from the federal government to the accounts of U.S. citizens born anywhere from Jan.1, 2025 through Dec. 21, 2028. This new program is set to begin its federal funding deposits on Jan. 1, 2026.
These accounts, owned by the child, can be funded by a parent or guardian, a relative or friend, an employer, the Internal Revenue Service (IRS) in special circumstances and an eligible charitable organization, but those also come with rules about how much can be contributed each year.
Contributions
Contributions must be made to accounts that follow the traditional IRA framework in the tax code. Funds grow tax-deferred, and all earnings are taxable upon withdrawal. Parents, guardians and other individuals can contribute up to $5,000 per year. Funds grow tax-free until the child turns 18.
Employers can contribute up to $2,500 for an employee or a dependent under age 18. Employer contributions count toward the $5,000 yearly limit.
The one-time, $1,000 government deposit for children born anywhere from Jan. 1, 2025 through Dec. 31, 2028, does not count against the $5,000 yearly limit. Certain other government programs and charities may also make contributions that do not count toward the annual limit.
Investments are limited to mutual funds or exchange-traded funds (ETFs) that track a qualified index like the S&P 500. They cannot use leverage, and annual fees are capped at 0.1%.
Taxation of distributions
While contributions from parents, guardians and other individuals create a nontaxable basis, employer contributions, government deposits and charitable gifts are taxable when withdrawn. Withdrawals of taxable amounts before age 59½ may be subject to a 10% early distribution penalty, unless an exception applies.
Funds can be used for higher education, small business start-up costs or first-time homebuyer expenses. Nonqualified withdrawals, however, would be taxed as ordinary income with penalties. After age 30, any unused funds can be withdrawn for any reason, with the first withdrawal of up to 50% of the balance allowed at age 18.
The bottom line
The OBBBA has helped to reshape the education and savings landscape for families. Whether you have a child who is a toddler or a teenager, it’s never too soon to start saving. If you’re already using a 529, these new provisions have only sweetened the deal. These new tools are designed to help you secure a brighter financial future for your children without sacrificing your own.
Chris Kampitsis and Ben Soccodato lead The SKG Team at Barnum Financial Group in Elmsford. For more, click here.
