How the One Big Beautiful Bill Act Will Reshape 529 Plans

529 College Savings Plan is written in a notebook next to a pen and calculator.

(Image credit: Getty Images)

President Trump's tax package, the One Big Beautiful Bill Act (OBBBA), passed the House in May and the Senate this past week. On July 4th, Trump signed the bill into law, with some provisions taking effect immediately. However, the exact timeline for 529 expansions may depend on guidance from the Treasury and IRS.

Among its key proposals is an expansion of 529 education savings plans created to help families save for future education expenses. Not just a college savings vehicle, 529 plans can also be useful estate planning and retirement savings tools.

With a 529 plan, contributions grow tax-free, and withdrawals for qualified education costs are also tax-free. Considering the cost of college, a little help now could go a long way in planning for your child’s education.

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A 4-year college degree at a public in-state school costs approximately $120,000 (including tuition, books, supplies, dorm room, and other expenses). On average, a college student graduates with about $39,000 in student loan debt. And that’s just the average. Multiply that amount by the number of students attending college (about 43 million), and you get about $1.6 trillion in federal student loan debt as of early 2025, per the U.S. Department of Education. Yikes.

Good news — your 529 savings plans just got a sweet upgrade.

Bad news — the new law limits financing options, making it harder for student borrowers to manage their debt.

Read: Trump Targets Student Loan Forgiveness: Here’s How Taxes and Repayment Could Soon Change

Enhanced 529 plans

Enhancements to 529 plans under the One Big Beautiful Bill Act call for a significant expansion of 529 plan benefits and include a brand-new Kids' Savings Program called the MAGA account, withdrawal limit increases and the expansion of qualified expenses.

Read: Should You Start a Trump Account For Your Child?

Increased K-12 Withdrawal Limit

The OBBBA expands the definition of qualifying education expenses for 529 withdrawals. Currently, families can withdraw up to $10,000 per year for elementary or secondary education. The law expands the maximum limit to $20,000.

Expanded K-12 Qualified Expenses

The law expands the definition of "qualified expenses" for K-12 education to include non-tuition costs such as:

Curriculum materials
Fees for nationally standardized tests
Books and other instructional materials
Dual-enrollment fees for college courses taken in high school
Online educational materials
Tutoring or educational classes outside the home
Specialized strategies designed to support students with disabilities

On top of that, you can tap your 529 for these costs without federal tax worries. At the same time, any expansion of K-12 benefits may require new legislation on a state-by-state basis, as not all states currently consider K-12 expenses as qualified expenses for tax purposes.

Additional qualified higher education expenses

The new law allows tax-free withdrawals for a wider workforce, on-the-job training, and continuing education programs. This includes tuition, miscellaneous fees, books, exam costs and supplies for programs listed under the Workforce Innovation and Opportunity Act.

Programs that appear on a state or federal Workforce Innovation and Opportunity Act list
Programs listed in the VA’s WEAMS database
Programs that prepare students for industry-recognized licensing exams
Continuing education fees that may be required to keep a credential active

Fixed ABLE-account flexibility

The three Achieving a Better Life Experience (ABLE) provisions, currently set to expire at the end of 2025, will become permanent. The law makes it possible to roll over funds tax-free from 529 plans to ABLE accounts, along with the "ABLE-to-Work" contribution limit and the Saver’s Credit for ABLE contributions.

A brand-new “MAGA” kids’ account in 2026

While not a 529 plan, the Money Accounts for Growth and Advancement (MAGA) program can also be used for saving for your child's education. Under the terms of the OBBBA, funding of up to $5,000 per year is allowed. Contributions can come from a parent or guardian for a child under 8, and any gains would be taxed at the long-term capital gains rate when used for higher education, a first-home purchase, or starting a small business.

The law also calls for a one-time contribution of $1,000 from the federal government to the accounts of children who are U.S. citizens at birth born between January 1, 2025, and January 1, 2029. At least one parent must provide a valid Social Security number.

Parents and relatives can contribute up to $5,000 annually (adjusted for inflation) to the account, with funds growing tax-deferred until the child reaches age 18.

Funds can be used for higher education, small business startup costs, or first-time homebuyer expenses, with withdrawals taxed at the long-term capital gains rate for qualified expenses. Non-qualified withdrawals are taxed as ordinary income with penalties.

Any unused funds could be withdrawn for any reason after age 30. The first withdrawal would be at age 18 (up to 50% of the balance). Earlier withdrawals for non-qualified expenses would be taxed at ordinary income rates.

What 529 rules stay the same

Although the new law expands how you can use 529 money, many of the current rules remain the same.

No change to federal 529 contribution rules
Lifetime caps on contributions remain state-specific
Earnings in 529 plans continue to grow tax-free when used for qualified education expenses.
State-specific tax deductions or credits for 529 contributions remain unaffected by the bill. (States may need to enact legislation to align with the expanded federal definition of qualified K-12 expenses for state tax purposes).
The existing provision allows tax-free rollovers from 529 plans to Roth IRAs, up to a lifetime limit of $35,000 (subject to annual Roth contribution limits).
Withdrawals for non-qualified expenses continue to incur ordinary income tax, plus a 10% penalty on earnings.

Proposed timeline

President Trump's "One Big Beautiful Bill Act" was signed into law on July 4, 2025, during a ceremony at the White House. However, the various provisions within the bill take effect at different times.

MAGA accounts are now open, and the federally funded $1,000 newborn deposits will begin on January 1, 2026.

Why you should have a 529

It doesn’t matter if your child is a teen or a toddler; it’s never too soon to start saving for college with a 529 plan — just make sure you’ve paid down or paid off your debt, set up an emergency fund, and are saving for your retirement first.

If you’re already using a 529, the One Big Beautiful Bill Act only sweetened the deal. A college education follows your kids for life, just make sure the cost of funding doesn't take a toll on your finances for the rest of your life.

For the past 18+ years, Kathryn has highlighted the humanity in personal finance by shaping stories that identify the opportunities and obstacles in managing a person's finances. All the same, she’ll jump on other equally important topics if needed. Kathryn graduated with a degree in Journalism and lives in Duluth, Minnesota. She joined Kiplinger in 2023 as a contributor.