How is the Trump bill changing 529 plans?

The 529 plan has long been a staple for college savings. These tax-advantaged accounts allow funds to grow tax-deferred, with tax-free withdrawals permitted for qualified education expenses. And now, they are about to have a little bit more flexibility.

As part of the budget reconciliation bill enacted in July, 529 plans can be "used to help pay for a broader range of post-high school credentials, like certification in specialties like auto mechanics or food safety, and related expenses," said The New York Times. The law has also "expanded what elementary and high school expenses can be paid for with a 529."

Expanded use of funds for credentialing programs

One of the most notable changes to 529 college savings plans under the Trump tax bill is that "families can now use 529 plans for credentialing programs such as welding, aviation mechanics and other trade certifications," said Saving for College, a financial education website. Tax-free withdrawals from 529 plans are permitted for a range of costs associated with these programs and others, including "tuition, miscellaneous fees, books, exam costs and supplies for programs," as well as "continuing education fees that may be required to keep a credential active," said Kiplinger.

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While this shift certainly provides a big boost for those pursuing trades and vocational careers, it can also help those seeking professional licenses and certifications. Under the changes, 529 plan funds are also usable for costs like "CPA exam prep and fees, bar exam review and registration costs and licensing exams for fields like law, accounting and finance," said Saving for College.

For expenses to qualify, however, students must be in courses at "'recognized' credential programs, such as those on lists maintained by each state under a federal law passed in 2014, and those included in a special system maintained by the Department of Veterans Affairs," or in "programs approved by formal credentialing organizations," said the Times.

Higher withdrawal limits for K-12 expenses

The Trump tax bill doubles the amount that families can withdraw from 529 plans tax-free each year for K-12 expenses. Previously, up to $10,000 a year could be "withdrawn tax-free from a 529 fund to pay for kindergarten through Grade 12 tuition at private or public schools," said the Times. But "starting tax year 2026," withdrawals of "up to $20,000 annually" are allowed, said Kiplinger.

More qualified expenses for K-12 withdrawals

Alongside the increased withdrawal limit for K-12 expenses, the definition of what K-12 expenses are considered qualified is also expanding. While previously the use of tax-free withdrawals was "limited to tuition," now 529 plans can "cover an extensive range of additional K-12 costs," said Saving for College. "For instance, books and standardized test fees (like the SAT or ACT) are 'qualified expenses' under the new law for 529 plans, as are online learning materials, certain tutoring fees and dual enrollment fees for college courses taken in high school," said Kiplinger.