Major 529 Plan Changes for 2025: What Every Parent Needs to Know

If you've been saving for your kids' education with a 529 plan, get ready for some amazing news. The rules just got a massive upgrade, and honestly, these changes are game-changers for families everywhere.

Here's the deal: new federal laws have completely transformed how you can use 529 education savings plans. We're talking about the biggest expansion of these benefits in decades. You can now use your 529 money for way more than just college tuition – think kindergarten tutoring, professional certifications, and here's the kicker – you can even roll unused funds into a Roth IRA for retirement.

This couldn't have come at a better time. College costs keep going up, more kids are choosing trade schools or alternative paths, and parents have been stuck with these rigid college-only savings accounts. Not anymore. These new rules basically turn your 529 plan into a flexible, lifelong learning account that can adapt to whatever path your child chooses.

Your K-12 expenses just got a major upgrade

Starting July 5, 2025, you can use your 529 money for a broader range of elementary and high school expenses than just tuition. We're talking tutoring, test prep, educational materials, and even therapy for kids with learning differences.

Let me give you a real example. Say you're a parent with kids in private school. Before, you could only use your 529 for tuition – up to $10,000 per kid each year. Now? You can also cover SAT prep courses, AP exam fees, dual enrollment college classes, and specialized tutoring. All tax-free from your 529 account.

Here's what you can now pay for with 529 funds:

• Curriculum materials and textbooks
• Tutoring from qualified instructors (sorry, can't pay yourself or relatives!)
• Standardized test fees like SAT and ACT
• Dual enrollment program fees
• Educational therapy for students with disabilities

But wait, it gets better. Starting in 2026, the annual limit for K-12 expenses doubles from $10,000 to $20,000 per kid. If you're in the 24% tax bracket and use the full $20,000 limit, you could save about $2,400 in federal taxes compared to paying with after-tax dollars. That's real money back in your pocket.

Trade school and professional certifications are now fair game

Starting July 5, 2025, you can use 529 money for professional certifications and trade programs. This is huge because not every kid is going the traditional four-year college route, and frankly, many trade jobs pay incredibly well.

Picture this: your 18-year-old decides college isn't for them and wants to become an HVAC technician instead. Under the new rules, your family's 529 account can cover the $8,500 tuition, $1,200 for required tools and equipment, $400 in certification exam fees, and even ongoing continuing education. That's over $10,000 in tax-free education expenses.

The programs need to be recognized by federal workforce development authorities, registered apprenticeship programs, or state-approved credentialing organizations. Think things like:

• CFP certification for financial planners
• Nursing continuing education
• CPA exam prep
• Bar review courses for lawyers
• Skilled trade certifications (plumbing, electrical, automotive)

This change finally acknowledges what we all know: there are many paths to a successful career, and they don't all go through a traditional college campus.

The game-changer: rolling unused 529 money into retirement savings

This might be the most exciting change of all. You can now move unused 529 funds into a Roth IRA for retirement. This solves the biggest worry parents have had about 529 plans: "What if I save too much and my kid doesn't need it all?"

Now you don't have to stress about that anymore. If your child gets scholarships, chooses a less expensive path, or simply doesn't use all the money, you can roll unused funds into their Roth IRA without facing penalties.

Here's how it works: The 529 account has to have been open for at least 15 years, and you can only roll over contributions and earnings that have been in the account for at least 5 years. There's a lifetime limit of $35,000 per kid, and you can only roll over up to the annual Roth IRA limit each year (that's $7,000 in 2025).

Let me paint a picture for you. Say your daughter decides not to go to college and becomes a freelance graphic designer. She's got $30,000 sitting in her 529 account. She can roll over $7,000 each year to a Roth IRA, moving the whole thing over five years. If that money grows at 7% annually, it could turn into nearly $450,000 by the time she retires – completely tax-free.

And here's a bonus: these rollovers bypass the usual Roth IRA income limits. So even if your kid becomes a high earner who normally couldn't contribute to a Roth IRA, they can still use this strategy.

Better support for families with disabled children

Families supporting kids with disabilities got some great news too. Those 529-to-ABLE account rollovers that were supposed to expire? They're now permanent. Plus, starting in 2026, ABLE account eligibility expands from disability onset before age 26 to before age 46.

This is especially helpful for military veterans who became disabled after age 26 due to service-related injuries. You can roll over 529 funds to ABLE accounts without any tax headaches, up to the ABLE annual contribution limits ($19,000 in 2025).

ABLE accounts are pretty amazing because they cover broader expenses than 529 plans and don't mess with your eligibility for government benefits like SSI and Medicaid. It's another way these new rules recognize that families need flexibility.

The gift tax benefits are still excellent (and now even better)

Don't worry – all those great gift tax advantages that make 529 plans such powerful tools are still there. For 2025, you can contribute $19,000 per kid per year without any gift tax issues ($38,000 if you're married).

And there's still that "superfunding" trick where you can dump up to $95,000 ($190,000 for couples) all at once using a five-year election. Basically, you're using up five years' worth of gift tax exemptions in one shot.

Grandparents can make significant 529 contributions that immediately get assets out of their taxable estate while still keeping control as the account owner. And now with the Roth rollover option, there's way less worry about putting in too much money.

Here's another bonus: recent changes to financial aid rules make grandparent-owned 529 accounts way more attractive. Before, when grandparents took money out of their 529s, it counted as student income on financial aid applications, which could reduce aid. The 2024-2025 FAFSA eliminated this penalty, making grandparent 529s a much better strategy.

How to think about planning with these new rules

With all these new options, you'll want to think a bit more strategically about your 529 planning. The key is considering what path your kids might actually take. A kid who's interested in trade school might need funds earlier, but in smaller amounts than one planning to become a doctor.

Record-keeping is going to be more critical than ever. You'll need to document that credentialing programs meet the requirements and keep receipts for all qualified expenses. And if you're thinking about using education tax credits alongside 529 distributions, you need to be careful not to double-dip.

Don't make these costly mistakes

Look, these new rules are fantastic, but there are some ways you can really mess things up if you're not careful.

First, never assume your state follows the federal rules. States like California and New York are particularly picky about what they consider qualified expenses. They might not recognize the new federal categories, which means you could get hit with state taxes even when the feds say you're good. Always double-check your state's specific rules before taking money out.

The Roth rollover rules are tricky too – you need to track that 15-year requirement and the 5-year contribution aging carefully. The IRS hasn't been super clear about what happens if you change beneficiaries on an account, so if you have multiple kids, you might want separate accounts instead of swapping beneficiaries around.

The bottom line: these changes are huge

Here's what it all comes down to: 529 plans just became way more flexible and useful. We've gone from narrow college-only savings accounts to these comprehensive tools that can support your family's learning and financial goals throughout life.

These changes recognize that kids don't all follow the same path – some go to trade school, some get scholarships, some become entrepreneurs who never step foot in a classroom after high school. And finally, the tax code is catching up to that reality.

The best part? If you're already saving in a 529, these changes just made your existing strategy better. If you haven't started yet, well, there's never been a better time. With the right planning, these new rules can help you save serious money on taxes while building both education and retirement savings for your family.

The key is understanding the rules and timing everything right. These changes are rolling out over the next couple of years, so you'll want to stay on top of when each provision kicks in. And definitely check with a financial advisor or tax professional about your specific situation – especially when it comes to state tax rules and the more complex Roth rollover requirements.

Reach out to me on the contact page below to see how 529 plans can help fund your child's education needs.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on to avoid Federal Government tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.