A 529 Plan, also known as a Qualified Tuition Program (QTP), is a common way to save for education because of its tax advantages. Before the passage of the One Big Beautiful Bill Act in 2025, 529 funds were primarily designed for college-related costs. The 2025 Federal Law expanded the benefit of funding a 529 Plan by broadening the list of qualified uses and increasing funding for K-12 education expenses.
Under prior Federal law, up to $10,000 per student annually could be withdrawn from 529 funds to pay for qualified K-12 tuition expenses. Beginning July 5, 2025, eligible expenses for K-12 were expanded beyond tuition. 529 fund use is expanded to learning materials, some support services, testing and admissions, advanced learning, and specialized care. In addition, the annual K-12 withdrawal limit has doubled effective January 1, 2026, a jump from $10,000 to $20,000 per student per year.
The best advantage of a 529 Plan is the favorable tax treatment for earnings and withdrawals. Investment earnings grow tax-deferred and qualified withdrawals are exempt from federal taxes. Furthermore, some states offer deductions or credits for 529 Plan contributions that can further help to reduce the cost of education. Since states differ in the treatment of 529 plan funding and distributions, advanced planning for the use and funding of these plans is essential.
Overall, the Act makes 529 Plans a more flexible tool for funding education and meeting long-term educational needs.
Article contributed by Trang Do
