529 Plans account for more than 30% of all education savings plans and are the most popular of their kind. These plans can be used to finance higher education expenses such as tuition, fees, and room & board for post-secondary education.
Most parents and guardians tend to save more during the teenage years of the beneficiary. This is understandable as the costs of college keep increasing each year. Therefore, a 529 Plan allows parents to save for their child’s college expenses in an easy and tax-advantaged way.
What Are 529 Plans?
These plans are tax-advantaged savings accounts that enable parents or guardians to save for a college education. Each state offers at least one 529 plan and a few states offer multiple options. Contributions made to these plans are not typically subject to federal income taxes. You may be eligible for state tax deductions or credits.
Most states, such as Connecticut, Rhode Island, New York and more, have no minimum contribution requirements. Currently, 529 plans are offered by 49 states and the District of Columbia. According to recent data, total assets in 529 plans have grown to approximately $500 billion, a record high, distributed across more than 15 million accounts.
Why 529 Plans Are Important
529 plans are a great way to save for college, as they offer more flexibility and tax advantages than other savings vehicles. The money in the account can be used to pay tuition expenses at any accredited university or college in the United States, including online courses.
Additionally, if you have more than one child you can use the same 529 plan to save for each child’s college expenses. This flexibility makes these plans an attractive and smart way to save for college.
Expanded Qualified Expenses
Thanks to the One Big Beautiful Bill Act signed into law on July 4, 2025, 529 plans are now significantly more flexible in how funds can be used. Beyond traditional tuition, 529 funds can now be withdrawn tax-free for:
- Curriculum materials, textbooks, workbooks, and digital learning tools
- Tutoring and standardized test fees (including college entry exams)
- Dual-enrollment fees
- Vocational and trade education programs
- Specialized strategies and tools for learners with disabilities
Additionally, the annual K-12 withdrawal limit has doubled from $10,000 to $20,000 per student per year, effective January 1, 2026. This gives families significantly more flexibility to use 529 savings for private school, homeschooling, and supplemental education throughout elementary and secondary school.
Rollover to Roth IRA
The SECURE 2.0 Act brought in a major change, effective in 2024, that allows rollover of funds from a 529 plan into a Roth IRA. Under these rules, if a beneficiary decides not to pursue higher education or has leftover funds, those savings can be redirected toward retirement. Key conditions include:
- Lifetime maximum of $35,000 in rollovers from a 529 to a Roth IRA
- The 529 account must have been open for at least 15 years
- Contributions and earnings from the past 5 years are not eligible for rollover
- Annual Roth IRA contribution limits still apply ($7,500 in 2026 for those under 50)
- The beneficiary must have earned income at least equal to the rollover amount
This change gives families greater confidence in contributing to a 529 plan, knowing that unused funds won’t simply be penalized if college plans change.
The Grandparent Loophole: FAFSA Update
A significant update affects families where grandparents own a 529 plan. Starting with the 2024-2025 academic year, distributions from grandparent-owned 529 plans no longer count as untaxed student income on the FAFSA. Previously, such withdrawals could reduce a student’s financial aid eligibility by up to 50% of the distribution amount. Now, students can benefit from both grandparent support and institutional aid without one impacting the other.
ABLE Account Rollovers Now Permanent
Families of beneficiaries with disabilities have additional good news. Tax-free rollovers from 529 plans to ABLE accounts, which help cover disability-related expenses like education, therapy, and housing, are now permanently available. Previously, this provision was set to expire December 31, 2025. Additionally, ABLE account eligibility has expanded to individuals with disabilities occurring before age 46, up from age 26.
Conclusion
The high contribution limits and tax advantages of 529 plans have always made them an attractive option for families saving for education. Recent legislative changes have made them even more powerful, expanding qualified expenses, doubling K-12 withdrawal limits, enabling Roth IRA rollovers, and removing barriers for grandparent-funded accounts.
529 Day is a national reminder to shore up your college savings plans. Barnum Financial Group can help answer any questions you may have surrounding 529 plans. As always, your first step is speaking with a financial advisor today.
