As Backpacks Come Out, So Should Your 529 Strategy
A refresher on 529 plans and key updates from the OBBBA
It’s that time again: back-to-school season. As you shop for supplies, meet teachers, and stock up on snacks for the year ahead, it’s also a great time to revisit—or consider opening—a 529 plan for your student.
What Is a 529 Plan?
A 529 plan is a state-sponsored, tax-advantaged education savings account. Contributions are made with after-tax dollars, but earnings grow tax-free, and qualified withdrawals are also tax-free. These plans are administered by every state and are available through many major financial institutions. Anyone can open and fund a 529 for any beneficiary: you do not need to be related to someone to make a 529 plan contribution for them.
Although there are no federal contribution limits, contributions are treated as gifts for gift and estate tax purposes. In 2026, an individual may gift up to $19,000 to another individual tax-free; a married couple may gift up to $38,000 with no gift tax. Individuals can front end load 529 plans by making up to five years of annual gift exclusion dollar amount contributions to a plan. That's $95,000 per donor, or $190,000 for a married couple. In addition, 529 account assets are generally excluded from the account owner’s taxable estate.
What Counts as a Qualified Expense?
For higher education—including college, university, and vocational school—529 owners may withdraw funds for the following qualified expenses:
Tuition, fees, books, supplies, and equipment required for enrollment or attendance
Room and board, if the student is enrolled at least half-time, up to the room and board allowance included in the school’s official cost of attendance
Computers, peripheral equipment, software, internet access, and related services, if used primarily by the beneficiary during enrollment years
Includes most overseas colleges and universities
For K–12 education, owners may withdraw funds for the following expenses:
Up to $20,000 per year for tuition, curriculum and curricular materials, books and other instructional materials, tutoring, standardized test fees, dual-enrollment fees, and educational therapies for students with disabilities
For apprenticeships and recognized postsecondary credentialing programs, the following expenses may qualify:
Fees, books, supplies, and equipment required for participation in an apprenticeship program registered and certified with the Department of Labor or in a recognized postsecondary credential program
Fees for testing required to obtain or maintain the credential
Fees for required continuing education
For students with special needs, expenses for special needs services incurred in connection with enrollment or attendance are qualified expenses.
Finally, 529 funds may be used to pay principal or interest on qualified education loans of the designated beneficiary or the beneficiary’s sibling, subject to a $10,000 lifetime cap per individual.
What Does Not Qualify?
It’s just as important to understand what does not qualify. The following expenses generally cannot be paid with 529 funds without triggering tax and penalty consequences:
Transportation or travel to and from school, health insurance, extracurricular activity fees, sports equipment unless required for a course, and off-campus rent above the school’s published cost-of-attendance allowance.
What Are the Limitations of 529 Accounts?
Withdrawals must be used for qualified expenses. If funds are used for nonqualified expenses, the earnings portion is generally subject to income tax and a 10% penalty.
Investment options and changes are also limited. Account owners may generally change current investments only twice per year, or upon a beneficiary change, without triggering tax consequences.
What Flexibility Do 529 Accounts Offer?
An account owner may change the beneficiary at any time. However, if the new beneficiary is a generation younger than the original beneficiary, the change may be treated as a gift for tax purposes.
Owners may also roll funds from one 529 plan to another, so they are not locked into a single plan. In addition, you may invest in a plan from any state, regardless of where you live.
Unused 529 funds may also be rolled into a Roth IRA for the beneficiary, up to a $35,000 lifetime limit. The 529 account must have been open for at least 15 years, and only contributions—and their associated earnings—made more than five years before the rollover are eligible. The rollover is also subject to the annual Roth IRA contribution limit, so using the full $35,000 limit would generally take multiple years. The beneficiary must have earned income at least equal to the rollover amount, though normal Roth IRA income phaseouts do not apply. Keep in mind that changing beneficiaries may restart the 15-year clock, and the transfer must be made directly from the 529 plan to the Roth IRA.
Funds may be rolled from a 529 plan to an ABLE account for the same beneficiary or a qualifying family member, subject to the annual ABLE contribution limit. Under the OBBBA, this option no longer has a sunset date.
Up to $10,000 of 529 funds may also be used to pay qualifying student loans, which can be a helpful option for families with both remaining 529 balances and education loan debt.
If a beneficiary receives a tax-free scholarship, an equivalent amount may be withdrawn from the 529 plan without the 10% penalty. The earnings portion is still taxable, but this flexibility can be useful for families concerned about overfunding.
What Changed with the OBBBA?
The One Big Beautiful Bill Act (OBBBA) made several meaningful changes to the rules governing 529 plans.
Qualified K–12 expenses were expanded to include:
Curriculum materials, textbooks, and digital learning tools
Tutoring, subject to certain conditions
Standardized test fees, including SAT and ACT fees, and dual-enrollment fees
Educational therapies for students with disabilities
The K–12 withdrawal cap also doubled from $10,000 to $20,000 per beneficiary beginning in tax year 2026.
Postsecondary credential programs—including vocational training, professional certifications, licensing, and apprenticeships—now qualify. Covered expenses may include tuition, fees, books, supplies, equipment, testing fees, and required continuing education for recognized postsecondary credential programs.
The OBBBA also made permanent the provision allowing tax-free rollovers from 529 plans to ABLE accounts. Contributions to ABLE accounts remain eligible for the Saver’s Credit, subject to applicable rules.
With expanded flexibility and broader qualified expense categories, 529 plans can be valuable tools from several planning angles. If you have not already considered one for your student, back-to-school season is a timely opportunity to take a closer look.
— Katie Skurski, CFA
Senior Relationship Manager
EQV Advisory
EQV Advisory is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about EQV’s investment advisory services can be found in its Form ADV Part 2 and/or Form CRS, which is available upon request.