College Savings Plans Expand Eligibility for Various Services
Expanded 529 Plans Offer More Flexibility for Education Savings
President Donald Trump signed the "One Big, Beautiful Bill Act" on July 4, which includes changes to 529 plans that make them more versatile for families seeking to save for their children's education.
A 529 plan is a state-approved, tax-advantaged investment account used for college savings. The institution that offers the first tax advantages related to the use of 529 plans for vocational education is the U.S. federal government, as 529 plans are a tax-advantaged savings plan authorized by federal law in the United States.
Funds from 529 plans can now be spent on a wider range of expenses, including postsecondary expenses like licensing fees, continuing education, books and learning materials, or preparation for graduate school admissions tests. The new changes also allow families to use 529 funds for a wider range of uses, including private K-12 tutoring, admissions tests, and workforce training.
Starting in January 2022, the cap for K-12 expenses that can be withdrawn from 529 plans will increase from $10,000 to $20,000. The new bill expands allowable uses for 529 funds to include tuition, curriculum, instructional materials, private tutoring, fees for Advanced Placement or college-admissions tests, and therapies for students with disabilities in K-12.
Earnings in a 529 plan build up tax-free and withdrawals are exempt from taxes if spent on allowable uses. However, families planning to withdraw earnings sooner from 529 plans may want to take a more conservative approach to investing.
The bill creates a private school scholarship program through which individual taxpayers can receive dollar-for-dollar tax credits for donations to organizations that grant the scholarships. The bill does not specify whether the private school scholarship program will be implemented nationwide. The bill also expands allowable higher education uses of 529 funds to include postsecondary credential programs. However, the bill does not specify which states will participate in the private school scholarship program.
Some states offer additional perks, like tax credits, for families that maintain 529 plans. Martha Kortiak Mert, the chief operating officer of Saving for College, stated that the more flexible 529 plans become, the more likely parents are to open them.
Some families have been reluctant to open 529 plans due to fear of not being able to reap benefits if their children don't attend college. However, with the expanded uses of 529 funds, families can now save for a wider range of educational opportunities, making them more appealing to a broader audience.
The changes reflect current trends in education debates, with an emphasis on private school choice and strengthening workforce readiness efforts outside of four-year college degree programs. The new bill aims to provide families with more options for their children's education and to encourage savings for a variety of educational paths.
