The One Big Beautiful Bill (OBBB) enhances the flexibility of 529 college savings plans, making them more versatile than ever. Traditionally, 529s have been used for qualified education expenses, but under the new rules, you now have more ways to use these funds without losing the tax benefits.
At Molen & Associates, we help families build tax-smart education and financial plans. Here’s what’s changed for 2025 and beyond.
529 Plan Basics
A 529 plan is a tax-advantaged savings account designed to encourage saving for future education expenses.
- Earnings grow tax-free, and withdrawals are tax-free if used for qualified expenses.
- Contributions are not deductible at the federal level (though some states offer deductions or credits).
What’s New Under the OBBB
|
Feature |
Pre-OBBB Rules |
Post-OBBB Updates |
Key Changes |
|
Higher Education Expenses |
Tuition, fees, books, supplies, equipment, and room & board |
No changes |
No changes to traditional higher education expenses. |
|
K–12 Education Expenses |
Up to $10,000 per year for tuition |
No changes |
No changes to K–12 tuition rules. |
|
Post-Secondary Credentialing |
Not covered |
Expenses for certifications, licenses, and credentialing tests are now covered |
Expanded to include career-related credentials. |
|
Student Loan Payments |
Not covered |
Up to $10,000 (lifetime limit) for beneficiary and each sibling |
Allows use of 529 funds for student loan repayment. |
|
Rollovers to Roth IRAs |
Not allowed |
Allowed for accounts open 15+ years; $35,000 lifetime cap |
Provides a tax-advantaged way to repurpose unused 529 funds. |
Key Changes Explained
1. Career-Related Credentials Now Covered
529 plans can now pay for:
- Professional certification programs
- State licensing exams (e.g., real estate license, nursing boards)
- Credentialing tests for trades and specialized careers
Why it matters: Families can now use 529 funds for education paths beyond traditional college degrees.
2. Student Loan Repayment Option
You can now use 529 funds to pay down student loans:
- Up to $10,000 lifetime limit per beneficiary
- The same $10,000 limit applies to each sibling of the beneficiary
Example: If a family has three children with outstanding student loans, they could use up to $30,000 total from a single 529 plan to help pay those loans.
3. Rollovers to Roth IRAs
If you have unused 529 funds and the account has been open for 15+ years, you can roll over up to $35,000 (lifetime limit) into a Roth IRA for the beneficiary.
- Must still respect annual Roth IRA contribution limits.
- Rollover amounts count toward the annual Roth IRA contribution for the year.
Why it matters: This is a powerful way to repurpose unused education savings into long-term retirement savings—without triggering taxes or penalties.
Planning Opportunities
- Flexibility for Nontraditional Paths
- 529 plans are now more appealing for families unsure if a child will attend a four-year college.
- Funds can cover trade schools, certifications, and licensing.
- Debt Reduction
- Families can now directly help with student loan balances without losing 529 tax benefits.
- Retirement Kickstart
- Rolling unused funds into a Roth IRA gives beneficiaries a head start on retirement savings.
- Avoiding Overfunding Risks
- The new rollover rule makes it safer to contribute more aggressively to 529s without fear of wasting unused funds.
Final Takeaway
The OBBB’s expanded 529 plan rules make these accounts more than just “college savings” tools—they’re now versatile, long-term financial planning vehicles. From funding a trade school certification to paying down student loans or boosting retirement savings, 529 plans can now adapt to more life paths than ever before.
Want to see how the new 529 rules could work in your family’s plan?
📖 Read more about the OBBB: molentax.com/obbb-webinar-series/#blogs
🎓 Attend a free webinar: molentax.com/obbb-webinar-series/#register
📅 Schedule a 1-on-1 consultation: molentax.com/contact
