Trump tax bill brings some big changes to 529 plans

Key Points

• It seems likely that the Trump tax bill, known as the "One Big Beautiful Bill Act," will bring significant changes to 529 plans, enhancing flexibility for education savings.

• Research suggests the bill increases the annual withdrawal limit for K-12 expenses to $20,000 from $10,000 and expands qualified expenses to include books, tutoring, and professional credential fees.

• The evidence leans toward introducing new MAGA accounts starting in 2026, offering additional savings options for children, though this is separate from 529 plans.

• There is controversy, as these changes may primarily benefit higher-income families, potentially leaving lower-income families reliant on other funding like Pell Grants.

Overview

The Trump tax bill, passed by the House and expected to be signed into law, introduces several updates to 529 education savings plans. These changes aim to make saving for education more accessible and flexible for families.

Key Changes

• Increased Withdrawal Limits: The annual limit for K-12 expenses has doubled to $20,000, up from $10,000, providing more financial support for educational costs.

• Expanded Qualified Expenses: Beyond tuition, 529 plans now cover additional K-12 costs like books, tutoring, standardized testing fees, and educational therapies for students with disabilities. It also includes fees for professional credentials, such as CPA exams, and supports on-the-job training and continuing education.

• Permanency of ABLE Provisions: Certain tax benefits for ABLE accounts, including tax-free rollovers from 529 plans, are made permanent, enhancing options for families with disabilities.

New Savings Vehicle

• Starting January 1, 2026, MAGA accounts will be available, allowing up to $5,000 annual contributions for children under 8, with tax benefits for education, first home purchases, or small business startups. This is a separate program but complements 529 plans.

Considerations

While these changes offer more flexibility, there is debate about their impact, with some suggesting they primarily benefit higher-income families. Lower-income families might see less direct benefit, potentially relying more on Pell Grants.

Supporting URLs:

• Yahoo Finance

• Kiplinger

Comprehensive Analysis of Changes to 529 Plans Under the Trump Tax Bill

As of July 4, 2025, the Trump tax bill, officially dubbed the "One Big Beautiful Bill Act," has passed the House and is poised for Senate approval, with expectations of reaching President Trump's desk for signature. This legislation significantly modifies 529 education savings plans to enhance flexibility and accessibility for American families. Below, we provide a detailed examination of these changes, their implications, and related developments, drawing from authoritative sources to ensure accuracy and depth.

Background on 529 Plans

Five hundred twenty-nine plans are tax-advantaged savings accounts designed primarily for future education expenses, allowing contributions to grow tax-deferred with tax-free withdrawals for qualified education costs such as tuition, fees, and room and board. According to the College Savings Plan Network, over 16 million Americans hold 529 accounts, with assets exceeding $500 billion. The Trump tax bill, aligned with the "America First" agenda, seeks to expand these plans' utility, particularly for K-12 and broader educational needs.

Detailed Changes to 529 Plans

The following table summarizes the key changes to 529 plans, as extracted from recent analyses:

Change Type	Details	Effective Date
Increased K-12 Withdrawal Limit	Annual limit for K-12 expenses raised from $10,000 to $20,000 per year.	Upon enactment
Expanded Qualified K-12 Expenses	Includes books, tutoring, standardized testing fees, educational therapies for disabilities, and more.	Upon enactment
Inclusion of Professional Credential Fees	Covers exams and licensing costs, e.g., for CPAs, as qualified expenses.	Upon enactment
On-the-Job Training and Continuing Ed	Covers tuition, books, fees, exams for workforce training, industry licensing, and continuing education.	Upon enactment
ABLE Account Permanency	Makes permanent ABLE-to-Work limit, Saver’s Credit, and tax-free 529-to-ABLE rollovers.	Upon enactment
Unchanged Rules	No changes to federal contribution limits, state-specific caps, $10,000 K-12 tuition limit, or federal tax treatment.	N/A

1. Increased Withdrawal Limit for K-12 Expenses

One of the most notable changes is doubling the annual withdrawal limit for K-12 expenses from $10,000 to $20,000. This adjustment, detailed in sources like Yahoo Finance, aims to alleviate financial pressures for families covering a broader range of educational costs at the elementary and secondary levels. This change takes effect immediately upon the bill's enactment, providing immediate relief for families planning educational expenses.

2. Expanded Qualified Expenses

The bill significantly broadens the definition of qualified expenses for K-12 education. According to Kiplinger, seven new categories are added: curriculum materials, nationally standardized test fees, books, dual-enrollment fees, online materials, tutoring, and strategies for students with disabilities. Effective upon enactment, this expansion enhances the utility of 529 plans for homeschooling families and those with special educational needs. Additionally, professional credential fees, such as those for CPA exams, are now covered, as noted in the Yahoo Finance article, further extending the plan's applicability to career development.

3. Support for On-the-Job Training and Continuing Education

Another significant expansion is the inclusion of on-the-job training and continuing education expenses. As per Kiplinger, 529 funds can now be used for tuition, books, fees, and exams listed in state or federal Workforce Innovation databases, the VA WEAMS database, and for industry licensing and continuing education fees. Effective upon enactment, this change positions 529 plans as a tool for lifelong learning and career advancement, potentially benefiting a wider demographic.

4. Permanency of ABLE Account Provisions

The bill ensures the permanence of three ABLE account provisions set to expire in 2025: the ABLE-to-Work contribution limit, the Saver’s Credit for ABLE contributions, and tax-free rollovers from 529 to ABLE accounts. This measure, detailed in Kiplinger and other sources, preserves tax-advantaged savings paths for families with disability-related expenses, enhancing inclusivity in educational savings.

5. Unchanged Rules and State-Specific Considerations

While the bill introduces these expansions, several core rules remain untouched, including federal contribution limits, state-specific lifetime caps, the $10,000 annual K-12 tuition limit, and the $10,000 lifetime student loan repayment limit. State-specific deductions and credits also remain in place, as noted in Kiplinger, though some changes, particularly for K-12 expenses, may require state-by-state legislation for full implementation.

Introduction of MAGA Accounts

In addition to changes to 529 plans, the bill introduces a new savings vehicle called "Money Accounts for Growth and Advancement" (MAGA accounts), set to open on January 1, 2026. According to Kiplinger, these accounts allow up to $5,000 annual contributions for children under 8, with gains taxed at the long-term capital gains rate when used for higher education, first home purchases, or small business startups. A $1,000 federal contribution is also provided for children born between January 1, 2025, and January 1, 2028. First withdrawals can be made at age 18 (up to 50% of the balance), with non-qualified withdrawals taxed at ordinary rates after age 30. While separate from 529 plans, MAGA accounts could compete for college savings dollars, offering broader life-stage flexibility, as noted in the Saving for College article.

Legislative Timeline and Status

As of July 4, 2025, the One Big Beautiful Bill Act has passed the House, with intense negotiations ensuring both chambers met their self-imposed deadline before this date, as reported by NAPA-Net Daily. The Senate has released its version, setting the stage for intraparty debate, with expectations of reaching President Trump's desk for signature imminently. The Joint Committee on Taxation estimates the expansion of 529 plans will cost $145 million over the next decade, according to PLANADVISER, reflecting the fiscal impact of these changes.

Socioeconomic Implications and Controversy

While these changes enhance flexibility, there is notable controversy regarding their socioeconomic impact. Patricia McCoy, a professor at Boston College Law School, highlighted in a Substack post (referenced in Yahoo Finance) that 529 plans "primarily are used as tax shelters by the top 10 percent," suggesting that lower-income families, who may not have 529 plans, could benefit more from increased Pell Grant funding. This perspective underscores a potential disparity, with the bill's benefits leaning toward higher-income families, a point echoed in discussions around the bill's broader tax and spending cuts favoring the wealthy, as noted in The New York Times.

Conclusion

The Trump tax bill substantially changes 529 plans, increasing withdrawal limits, expanding qualified expenses, and supporting lifelong learning through on-the-job training and continuing education. The permanence of ABLE account provisions and the introduction of MAGA accounts further diversify savings options. However, the benefits may disproportionately favor higher-income families, sparking debate about equity in educational funding. As the bill moves toward final approval, families and financial advisors are advised to monitor state-specific implementations and prepare for these new opportunities, particularly with MAGA accounts set for 2026.

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