by Brett Norris, CFP®
Vice President
Portfolio and Wealth Management
For many families, 529 plans have had a simple role: saving for college in a tax-advantaged account. The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, expands that role at the federal level by broadening how 529 assets may be used for K-12 education and certain post-secondary credentialing programs.
For families planning across generations, the changes are meaningful. A 529 plan can support education funding, gifting and estate planning goals. Contributions are treated as completed gifts to the beneficiary and may qualify for annual gift tax exclusion treatment. Account owners generally retain control under the terms of the plan, and unused balances are often eligible to be redirected to another qualifying family member.
One important caveat applies: OBBBA changed federal rules only. State income tax treatment does not always conform to federal treatment, particularly for K-12 withdrawals and other newly expanded uses.
Federal Changes
K-12 withdrawal limit: Beginning in 2026, the federal K-12 limit increases from $10,000 to $20,000 per beneficiary per year.
K-12 expenses: For distributions made after July 4, 2025, federally qualified K-12 expenses now include more than tuition. Books, online materials, qualifying tutoring, certain testing fees, dual enrollment and certain therapies for students with disabilities may now qualify.
Credentialing programs: Federal rules now include certain recognized credentialing programs after high school and related required costs, including tuition, fees, books, supplies, equipment, testing fees and required continuing education.
529-to-Roth IRA rollovers: This option was created under the SECURE Act 2.0, not OBBBA, but remains available under strict limits, which taxpayers must be aware of.
529-to-ABLE account rollovers: OBBBA also made permanent the ability to roll 529 assets to an ABLE account for the beneficiary or a qualifying family member, subject to ABLE account contribution limits and other requirements.
K-12 Flexibility is Broader, but Still Specific
The expanded federal K-12 rules may help families paying for private school, tutoring, test preparation, dual-enrollment coursework, or specialized learning support. For federal tax purposes, 529 plans can now support a broader education budget, not just college tuition.
Families should keep good records. The rules for tutoring, testing and therapy expenses are specific. For example, Advanced Placement exams and college admission exams may qualify, while other test-related costs should be reviewed before using 529 funds. Educational therapies for students with disabilities must also be provided by a licensed or accredited practitioner or provider.
Credentialing Programs Add Useful Flexibility
OBBBA also makes 529 plans more useful for certain career paths outside of a traditional four-year degree. Eligibility is limited to specific programs and providers. Qualifying programs may include certain vocational, licensing, certification, apprenticeship or workforce training programs. Because eligibility depends on the specific program, families should confirm that the credential qualifies before taking a distribution.
Depending on the program, 529 funds may now be used federally for required tuition, fees, books, supplies, testing fees and continuing education tied to a recognized credential.
Roth IRA Rollovers Remain Useful, but Limited
529-to-Roth IRA rollovers can help address overfunded 529 accounts, but eligibility is limited. The rollover must be to a Roth IRA for the 529 beneficiary, not the account owner. Generally, the 529 account must have been open for at least 15 years, annual Roth IRA contribution limits still apply, and lifetime rollovers are capped at $35,000 per beneficiary.
Importantly, a 529-to-Roth rollover uses the beneficiary’s annual IRA contribution allowance for that year. In practical terms, a beneficiary who receives a 529-to-Roth rollover may have reduced or no remaining room to make a separate IRA contribution for the same tax year. Other IRA contribution rules, including compensation requirements, should also be reviewed.
Estate Planning and Beneficiary Flexibility Still Matter
The estate planning case for 529 plans remains strong. In 2026, the annual gift tax exclusion is $19,000 per donor, per recipient, allowing an individual to give up to $19,000 to a single beneficiary, or a married couple to give up to $38,000 to that same beneficiary, without using lifetime gift and estate tax exemption. Families may also use the special five-year election, commonly referred to as the “superfund” strategy, to treat up to five years of annual-exclusion gifts as made ratably over five years. Under this strategy, an individual may contribute up to $95,000 to a 529 plan for one beneficiary in 2026, while a married couple may contribute up to $190,000 for that same beneficiary, assuming the required gift-tax election is made and no additional annual-exclusion gifts are made to that beneficiary during the five-year period. If a donor dies before the end of that five-year period, the portion of the contribution allocable to years after death may be included in the donor’s estate.
Families should also remember that a 529 account is not necessarily tied permanently to the original beneficiary. If the intended beneficiary does not need all the funds, the account owner may generally change the beneficiary to another qualifying family member, as defined by the IRS, subject to plan rules and transfer tax considerations. That flexibility can be valuable for families planning across siblings, cousins, grandchildren, and later generations, particularly when education needs are uncertain.
State Tax Treatment Requires a Separate Review
Federal 529 flexibility does not automatically apply at the state level. States administer their own 529 programs and may differ in how they treat K-12 expenses, credentialing expenses, Roth IRA rollovers, ABLE account rollovers and recapture of prior state deductions or credits. Some states may fully conform to the federal rules, while others may conform selectively or retain older definitions of qualified expenses.
Oregon illustrates why state-specific 529 rules should be reviewed before taking a distribution. Current Oregon Department of Revenue guidance states that Oregon is disconnected from the federal Section 529 tax exemption for earnings on 529 plan funds used for K-12 tuition, and that Embark and MFS 529 Savings Plan accounts may be used for higher education expenses only. Oregon law also provides that prior Oregon tax relief may be forfeited when funds from an Oregon higher education savings account are used for elementary or secondary school expenses. As a result, a withdrawal that is federally qualified under the expanded federal 529 rules may still create Oregon tax consequences, including a possible addition to Oregon income or recapture of prior Oregon tax benefits.
Families in Oregon, and other states that don’t fully conform to federal 529 rules, should confirm state treatment before using 529 assets for any of the newly allowed purposes. The website savingforcollege.com can be a useful starting point for families seeking to understand how states conform, or do not conform, to federal 529 plan rules, as it frequently publishes state-by-state summaries of 529 tax treatment. Because state rules can change and individual circumstances vary, families should confirm current treatment with their tax advisor before taking a distribution.
Planning Considerations
Below is a list of considerations to review before making any planning changes:
Do not assume that a federally qualified K-12 withdrawal is also state-qualified.
Keep records for each distribution, including invoices, receipts, proof of payment, the beneficiary's name, the expense date, and the connection to the qualifying education category.
Coordinate 529 withdrawals with federal education credits, since the same expense generally cannot be used for both a tax-free 529 withdrawal and a federal education credit.
Review funding levels periodically. The new rules provide more flexibility, but overfunding risk has not disappeared.
Final Takeaways
Recent tax law changes have made 529 plans more flexible at the federal level, especially for K-12 expenses and certain career-focused credentialing programs. For families planning across generations, that flexibility can make 529 plans even more useful as part of a broader education and estate planning strategy.
Families should keep in mind that not all states fully conform to the expanded federal K-12 rules Before using 529 funds for K-12 expenses or newly eligible credentialing programs, families should review both federal and state treatment and consult with their tax advisor or financial planner to understand how the rules may apply to their circumstances.
Disclosure
The views expressed represent the opinion of Ferguson Wellman. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections and other forward-looking statements are based on available information and Ferguson Wellman’s views as of the time of these statements. Past performance may not be indicative of future results. Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational purposes only and not as a substitute for qualified counsel who can determine how this information applies to you. We believe the information provided is from reliable sources but should not be assumed accurate or complete.
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