When the 2025 tax law was passed earlier this year, it did more than just tweak brackets and extend deductions, it quietly changed the game for education savings in America.
For years, 529 plans were basically college funds. You saved for tuition, room and board, maybe some textbooks. That was about it. Now? They cover K-12 qualified expenses, professional certifications, and lifelong learning. For families, this is a pretty big deal! A familiar tool just got a lot more useful.
Here's what's new:
- Broader K-12 expenses – As of July 2025, you can use 529 money for things like curriculum materials, online courses, standardized test fees, tutoring (with some limits), and educational therapy.
- Higher K-12 withdrawal limits – Starting in 2026, the annual cap on tax-free 529 withdrawals for K-12 doubles from $10,000 to $20,000 per student.
- Vocational training now counts – The law finally recognizes that not everyone goes the traditional college route. You can now take tax-free withdrawals for professional licenses, industry certifications, apprenticeships, and continuing education programs.
- 529-to-ABLE rollovers are permanent – Families can transfer money from a 529 to an ABLE account for beneficiaries with disabilities without getting hit with penalties.
- Higher contribution thresholds – With the annual gift-tax exclusion jumping to $19,000 in 2025, you can contribute more before worrying about reporting requirements.
Most of the fundamentals are the same. Qualified withdrawals, tax-free growth, and states setting their own tax-deductible contribution limits.
It's also worth keeping in mind that while the 2025 Act expanded 529 usage, there's another piece of legislation to remember: SECURE 2.0 (passed in 2022) already allows you to roll over unused 529 funds to a Roth IRA for the beneficiary—up to $35,000 over a lifetime. There are some hoops (the account needs to be at least 15 years old, recent contributions don't qualify, and annual IRA limits still apply), but it's a meaningful safety net for families worried about overfunding.
Why This Actually Matters
This isn't just a minor tweak. It changes how families should think about education planning altogether.
- More flexibility, earlier – Parents can now use 529s for a much wider range of educational paths (not just four-year degrees, but skills training and certifications) that actually align with how careers work today.
- Longer time horizons – Start investing earlier, use the account for ongoing education throughout life, and you're looking at potentially decades of tax-free growth.
- Less fear of overfunding – Between the expanded qualified expenses and the Roth rollover option, you don't have to be as conservative with contributions. If your kid/grandkid doesn't use it all for education (or even better gets a scholarship), there are now better options than penalties for non-qualified withdrawals.
- Strategy shifts ahead – Families will need to rethink contribution timing, figure out how 529s fit with Roth IRAs, and plan for what to do with leftover balances as these rules continue to evolve.
Even with these enhancements, 529 plans aren’t one-size-fits-all. The right funding strategy depends on your family’s timeline, goals, and how education fits into your broader wealth plan. Whether you’re saving for a child’s private school tuition, a grandchild’s future training program, or simply want to make the most of tax-advantaged growth, thoughtful design matters. At Baldwin Capital, we’d be glad to help you navigate the new rules, model different funding paths, and build an education strategy that fits seamlessly into the rest of your financial life.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. LPL Financial does not provide tax advice or services. Please consult your tax advisor regarding your specific situation.