How The Big Beautiful Bill Changed 529 Plans For The Better

We’ve been aggressively saving into a 529 plan since the birth of our first child more than 10 years ago. As we had more kids, we continued to make these contributions, because you can always change the beneficiary of a 529 plan without penalty.

If our first child didn’t end up needing it, our backup plan was to change the beneficiary to our second-born. With how much college costs these days, and will likely increase in the next decade, chances are that our 529 plans are going to be emptied.

If you don’t have four kids, the idea of putting too much into a 529 plan is a big risk. A good risk but a big one nonetheless.

But when the SECURE Act 2.0 was signed into law, it changed everything. There’s now no risk to funding a 529 plan.

529 Plans Can Be Rolled into Roth IRAs

The big headline change was that, subject to state laws, you can now roll over up to $35,000 of unused 529 plan funds into a Roth IRA for the beneficiary. There is no tax and no penalty if you follow certain conditions:

• The 529 plan must be open for at least 15 years
• The beneficiary must have earned income in the year of the rollover
• The rollover amount counts towards the contribution limit of that year
• The amount must have been in the 529 plan for at least five years

This means you can contribute more into a 529 plan knowing that $35,000 of unused funds could eventually be moved into a Roth IRA.

529 Plans Are More Versatile Than I Remembered

The ability to rollover unused 529 plan funds was the only major change in SECURE Act 2.0, there were additional changes to 529 plans that you may have missed.

There were three major changes by SECURE Act back in 2019 and the Tax Cuts and Jobs Act of 2017.

529 Plans can now be used to cover K-12 tuition of up to $10,000 per student as long as your state allows it. Previously, you couldn’t use it for K-12.

The Big Beautiful Bill increased the limit to $20,000 per student starting in 2026 and you can now include tutoring, fees for standardized tests, enrollment fees for postsecondary programs, and educational therapy costs for students with disabilities.

The SECURE Act of 2019 made it possible for you to use 529 plan funds to pay for apprenticeship program expenses, with no cap, as long as the program is listed with the U.S. Department of Labor. This includes fees, books, supplies, and any other required equipment.

Finally, you can now use up to $10,000 of 529 plan funds to pay for qualified student loans per person. The $10,000 is a lifetime limit that applies to the beneficiary and each of their siblings. Also, the interest paid with 529 plan funds isn’t tax deductible.

With the cost of college higher than ever, increasing the versatility of 529 plans helps more people pay for college.