The Expanding Power of 529 Plans: More Ways Than Ever to Use Education Savings

ByAshley Hours Categories Education Accounts

For years, 529 plans were viewed primarily as college savings accounts designed to help families pay for tuition. While that remains their core purpose, recent legislative changes have significantly expanded how these accounts can be used. Today, 529 plans offer families greater flexibility to support educational goals at every stage of life—from kindergarten through graduate school, apprenticeships, student loan repayment, and even retirement planning.

Understanding these expanded benefits can help families maximize the value of their education savings while avoiding unnecessary taxes and penalties. So let’s take a deeper dive into some 529 plans and how the recent legislation has improved qualified expenses. Check out the IRS website for more information on the qualified expenses and qualifications.

What Is a 529 Plan?

A 529 plan is a tax-advantaged savings account designed to help families save for education expenses. Contributions are made with after-tax dollars, but investments grow tax-deferred, and withdrawals are federal income tax-free when used for qualified education expenses. Many states also offer state tax deductions for contributions, making 529 plans an attractive tax efficient tool for long-term education planning.

Qualified Higher Education Expenses

Most people associate 529 plans with college tuition; however, funds can be used tax-free for a wide range of higher education expenses at eligible colleges, universities, graduate schools, and vocational programs.

Tuition and Mandatory Fees

There is no federal limit on the amount of 529 funds that can be used for qualified tuition and required fees at eligible postsecondary institutions.

Room and Board

Students enrolled at least half-time can use 529 funds for housing and meal expenses

This includes:

  • On-campus housing
  • Off-campus rent
  • Groceries and meal plans

Books and Supplies

Required educational materials qualify, including:

  • Textbooks
  • Lab supplies
  • Art materials
  • Course-required equipment

Technology Expenses

Modern education often requires technology, and 529 plans have adapted accordingly. These expenses generally qualify if they are primarily used by the student during enrollment.

Apprenticeships and Trade Programs

Not every student follows a traditional college path. This expansion provides valuable support for students pursuing skilled trades and technical careers.

Testing and Professional Development

Certain educational testing expenses may also qualify, including:

  • SAT and ACT exams
  • Credentialing programs
  • Continuing education requirements
  • Professional certifications

These provisions recognize that education often continues well beyond a traditional college degree.

Using 529 Plans for K-12 Education

One of the most significant changes to 529 plans has been the expansion into primary and secondary education. Families can now withdraw up to $20,000 per year per student for qualified K-12 educational expenses. This flexibility allows parents to access education savings much earlier than previously allowed.

Student Loan Repayment

529 plans can also help graduates reduce student debt. Account owners may use up to a lifetime maximum of $10,000 to repay qualified student loans for the beneficiary. In addition, each sibling of the beneficiary may also use up to $10,000 from a 529 plan toward their own qualified student loans. For families balancing education savings and debt repayment, this provision creates another valuable planning opportunity.

Converting Unused 529 Funds to a Roth IRA

One of the biggest concerns parents have about funding a 529 plan is the possibility that the money won’t be needed for education. Recent legislation has addressed this concern by allowing certain unused 529 funds to be rolled into a Roth IRA for the beneficiary.

Current rules allow:

  • Up to $35,000 in lifetime rollovers
  • The 529 account must have been open for at least 15 years
  • Annual Roth IRA contribution limits still apply
  • Additional IRS requirements may apply

This provision helps reduce the fear of overfunding a 529 account and is an attractive way to get your children a headstart on their retirement savings. If 529 funds are used for non-qualified expenses, the earnings portion of the withdrawal is generally subject to:

  • Ordinary federal income tax
  • A 10% federal penalty tax

The original contributions are not taxed again because they were made with after-tax dollars.

Because these penalties can significantly reduce the value of the account, it’s important to verify that an expense qualifies before taking a distribution.

Why 529 Plans Are More Valuable Than Ever

The modern 529 plan has evolved into far more than a college savings account. Families can now use these funds to support educational goals throughout a person’s life, from elementary school through advanced degrees, skilled trades, professional certifications, student loan repayment, and even retirement savings through Roth IRA rollovers. As the rules continue to expand, 529 plans remain one of the most versatile and tax-efficient tools available for education planning.

Before making withdrawals, review your specific state’s rules and consult with your financial advisor or tax professional to ensure expenses qualify and distributions are executed properly. Ready to discuss how a 529 plan can benefit your children or grandchildren and the best ways to strategize? Whether you’re saving for private school, college, student loan repayment, or taking advantage of new Roth IRA rollover opportunities, a thoughtful strategy can help you maximize the benefits available. Schedule a call with our team to learn more or email us at info@shermanwealth.com  to discuss.