529 Plans Are No Longer Just for College: New Tax Rules Expand Eligible Education Costs

Overview

Section 529 education savings plans have long been associated primarily with college tuition. Recent federal law changes significantly expand their usefulness and planning flexibility. In addition to allowing continued use of favorable federal gift tax rules for funding, 529 plans may now be used for a broader range of qualified education expenses, including certain postsecondary credentialing programs and expanded K–12 education costs.

These changes materially broaden the role of 529 plans for families and individuals whose education and career goals extend beyond traditional four-year degree programs. Skilled trades, healthcare certifications, technology credentials, and other career-focused pathways can now be supported using the same tax-advantaged structure that was once largely limited to college expenses.

Increased Funding Flexibility Under Gift Tax Rules

Federal law does not impose a hard annual contribution limit on 529 plans. Instead, contributions are governed by federal gift tax rules, including the annual gift tax exclusion and the ability to elect five-year accelerated gifting (often referred to as “superfunding”). These rules allow families to contribute substantial amounts to a 529 plan without incurring gift tax, provided the applicable elections and reporting requirements are met.

Separately, recent federal legislation extends and enhances the federal estate and gift tax lifetime exemption amounts, further increasing planning flexibility for higher-net-worth families funding education across multiple years or beneficiaries.

Many states also permit high lifetime account balance limits—often exceeding $400,000 per beneficiary—making 529 plans a viable long-term education and career development tool.

Expanded Qualified Postsecondary Credentialing Expenses

A key change expands the definition of qualified education expenses to include certain postsecondary credentialing programs. Under the updated rules, 529 plan funds may now be used for qualified expenses associated with recognized credentialing programs, including:

• Professional licensing programs
• Trade and skilled labor certifications
• Vocational and technical education programs
• Industry-recognized credentialing courses and examinations

To qualify, the credentialing program must meet federal eligibility standards, such as inclusion on recognized state workforce development lists or other federally approved program registries. Qualified expenses generally include tuition, fees, books, supplies, equipment, required testing fees, and certain required continuing education costs.

Expanded K–12 and Homeschool Education Expenses

In addition to postsecondary changes, federal law expands the list of K–12 education expenses that may be treated as qualified distributions from a 529 plan. These expenses now include a broader range of curriculum materials, instructional supplies, tutoring, and other qualifying education costs, including certain homeschool-related expenses.

For tax years beginning after December 31, 2025, the annual limitation on qualified K–12 distributions increases from $10,000 to $20,000 per beneficiary, significantly enhancing planning flexibility for families with private or alternative education arrangements.

What 529 Plans Covered Before

Prior to these changes, 529 plans were largely limited to the following qualified expenses:

• College and university tuition and mandatory fees
• Required books, supplies, and equipment
• Room and board for students enrolled at least half-time
• Limited K–12 tuition expenses (subject to lower statutory caps)
• Student loan repayments up to statutory lifetime limits

While helpful, these rules excluded many practical and career-focused education paths, particularly those relying on certifications or licensing rather than degree-based programs.

Planning Implications

These expanded rules transform 529 plans into a more flexible education and career planning vehicle. Families and individuals can now use these accounts to support a student entering the skilled trades, an adult pursuing professional licensure, or a mid-career professional seeking credential upgrades—while preserving tax-deferred growth and tax-free withdrawals for qualified expenses.

This flexibility is particularly valuable in industries where credentials evolve rapidly or where formal degrees are not the primary gateway to employment.

Schedule a Consultation to evaluate whether expanded 529 planning aligns with your education and overall tax strategy.

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