Navigating 529 Expansion Proposals: A Family-Focused Guide

What Is a 529 Plan?

A 529 plan (named after Section 529 of the IRS Code) is an education-focused savings plan to encourage families to save for future schooling costs. It was originally created to cover college expenses and other costs of higher education. The key benefit of a 529 plan is the tax advantage: while contributions are not federally tax-deductible, the money you invest grows tax-deferred, and withdrawals come out tax-free if used for eligible education expenses. Many states sweeten the deal by offering a state income tax deduction or credit for contributions to their plans, effectively making part of your contribution “pre-tax” at the state level.

Contributing to a 529 account is easy as there are generally no annual contribution limits aside from high overall balance limit (often $300,000–$500,000, varying by state, to prevent over-funding beyond what education might cost). In practice, contributions are subject to gift tax rules, since money put into a 529 is considered a gift to the beneficiary. The account owner retains control of the funds and continues to make investment and distribution decisions but is saving for the beneficiary’s education. Furthermore, a special 529 gifting feature allows a “five-year lump sum” of gifts. In other words, you can contribute five times the annual exclusion at once (e.g. for 2025 is $19,000 x 5 = $95,000 in one year) and treat it as if it were given over five years, which is useful for jump-starting an account. This way, families can front-load a 529 plan and let the investments grow over time.

We often advise our clients to coordinate 529 withdrawals with the college bill cycle to match each withdrawal to actual expenses. Keeping documentation of expenses is important in case the IRS inquires. Also, if your student receives a scholarship, note that an equivalent amount of 529 funds can be withdrawn penalty-free (but you’d still owe taxes on the earnings). And importantly, 529 plans are very flexible in terms of beneficiary: if the original child does not end up needing all the funds (or does not go to college), you can change the beneficiary to another qualifying family member (siblings, cousins, even yourself or your spouse) without tax penalty. This flexibility ensures the money can be used by someone for education, rather than going to waste. On a related note, a recent change already in effect (from the SECURE 2.0 Act) provides another safety valve: if you simply cannot use all the money for education, you may be able to roll over leftover 529 funds to a Roth IRA for the beneficiary (up to $35,000 lifetime limit, subject to annual contribution limits and certain conditions).

What Expenses Can a 529 Plan Cover Today?

Originally limited to college costs, 529 plans have seen their scope gradually broadened by lawmakers over the years. Today, they can cover a range of education-related expenses:

• College and University Costs: tuition, school fees, books, supplies, and equipment required for enrollment. Room and board also qualify if the student is enrolled at least half-time regardless of being off- or on-campus (up to the cost of on-campus housing).
• Computers and Technology: computers, peripheral equipment, educational software, and internet access (if the beneficiary needs them for school).
• Apprenticeship Programs: any expenses of apprenticeship programs registered with the US Department of Labor.
• Student Loan Repayment: up to a lifetime limit of $10,000 per beneficiary (and $10,000 for each of the beneficiary’s siblings).
• Private K-12 Tuition: up to $10,000 per year for tuition at private or religious K-12 schools. It’s important to note the $10,000 annual cap on K-12 tuition per student is allowed at the federal level, but not all states give state tax breaks (or some may even claw back deductions) if 529 money is used for K-12. Families should make sure to check their state’s stance.

Upcoming Legislative Changes: Expanding 529 Plan Uses

Policymakers are actively considering legislation that would expand the definition of qualified expenses for 529 plans. In fact, as of May 2025, a major tax bill is making its way through Congress (informally dubbed the “One, Big, Beautiful Bill” in the House) with strong provisions to broaden 529 usage. These proposals reflect a bipartisan recognition that education comes in many forms, and families need flexible savings tools to support that. While the details are still pending final approval, here are the key expansions being discussed:

• More K–12 Educational Expenses: Currently only K-12 tuition is covered, but the proposal would allow 529 funds to pay for additional K-12 costs. This includes curriculum materials, textbooks, online educational resources, tutoring services, and fees for standardized tests (like the SAT, ACT, AP exams). Even certain costs of homeschooling—such as educational software or dual-enrollment program fees (when high schoolers take college courses)—would become qualified expenses.
• Educational Therapies for Special Needs: Educational therapy and related services for students with disabilities would become qualified expenses.
• Postsecondary Credential Programs and Career Training: Perhaps the most groundbreaking change is allowing 529 money to be used for post-college or career-related education. The legislation would let funds cover expenses for certificate programs, trade or vocational schools, and other credentialing programs recognized under federal law. For example, costs associated with obtaining professional licenses or certifications could qualify from coding bootcamps to culinary school, or even designations like a Real Estate license or an IT certification. The House proposal specifically mentions that programs preparing students for industry-recognized licensing exams or appearing on approved workforce training lists would be 529-eligible.
• Professional Certifications (CFP, CFA, CPA, etc.): Building on the previous bullet, a supported bill (the Education and Workforce Freedom Act) would explicitly allow 529 withdrawals to pay for expenses of obtaining or maintaining professional credentials and licenses. This includes tuition or class fees, books, supplies, required exams, and even continuing education fees needed to keep a license or certification current. In other words, if you or your child wanted to pursue a post-college certification like becoming a Certified Financial Planner (CFP), a Certified Public Accountant (CPA), or a Chartered Financial Analyst (CFA), you could potentially use 529 funds to cover the courses and exam fees associated with that credential. This is a big deal as it transforms the 529 from just a college fund into a lifelong learning fund, useful for ongoing career development.

These proposed changes signal that Congress views education in a broader lens compared to just four years of college and represents a continuum from early schooling through adult professional growth. With these changes implemented, families could consider funding 529 plans for a broader set of applications throughout a person’s learning journey than in the past.

It is important to note that while these expansions have strong momentum, they are not law yet as of this writing. There is optimism that a compromise could pass sometime in 2025 under the budget reconciliation process, but until it is signed into law, families should stay tuned. At Hollow Brook, we’re closely watching these developments so that we can advise our clients on any new opportunities that arise.

Implications: What Do These Changes Mean for You?

A more flexible 529 plan is undeniably a win for families. If these changes pass, you could use one account to fund a child’s private school and tutoring in childhood, their college tuition in young adulthood, and even their professional certification courses in their 20s or 30s with the same tax-free benefit. This makes the 529 plan a comprehensive education savings vehicle. You may feel more comfortable contributing aggressively to a 529 knowing that if your child doesn’t need all the funds for college, the money could help with other education or career goals later. As advisors, we are adjusting our planning strategies to these changes. The broadened scope means we might recommend funding 529s not just for college, but as a general “Education Reserve Fund". 

As always, with new rules come new considerations. At Hollow Brook Wealth Management, we are here to help you navigate these changes and maximize the advantages of 529 plans for your family’s education goals. The landscape of education funding is evolving, but the goal remains the same: to empower the next generation (and even today’s generation of professionals) to pursue knowledge and skills without undue financial burden. With a well-funded 529 plan and the expanded flexibility on the horizon, you will be well-positioned to support your loved ones on their educational journey, wherever it may lead.

Disclaimer: Information provided is for educational purposes only. HBWM does not provide tax, legal, compliance, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions. Further, HBWM makes no warranties regarding such information, or a result obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.