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Big Changes May Be Coming to 529 Plans—Here’s What Savers Need to Know

Big Changes May Be Coming to 529 Plans - Here’s What Savers Need to Know

With more than $500 billion currently held in 529 college savings accounts, these plans have become a cornerstone of American education planning. Popular for their tax advantages and long-term growth potential, 529s have traditionally been used to fund college tuition and related costs.

Now, they may be poised to become even more useful.

Tucked into the House of Representatives’ recently passed tax-and-spending bill are provisions that would significantly expand the list of expenses eligible for tax-free 529 withdrawals. If enacted into law, the changes would allow families to use 529 funds for a broader array of educational paths that extend well beyond the traditional four-year college track.

The bill is now under review in the Senate, where the provisions could still be amended, but so far, they’ve attracted little controversy and enjoy bipartisan support, signaling a strong chance of passage.

529 Plans Today: A Quick Refresher

529 plans are tax-advantaged investment accounts designed to encourage education savings. While contributions aren’t deductible at the federal level (some states do offer deductions), account balances grow tax-free, and withdrawals are also tax-free when used for qualified education expenses.

Currently, those qualified expenses include:

  • College tuition and fees
  • Room and board (with conditions)
  • Books, supplies, and required equipment
  • Limited K-12 private school tuition (up to $10,000/year)

Withdrawals for other purposes typically incur tax penalties, limiting their flexibility.

What the Proposed Changes Would Do

The new provisions would significantly expand how 529 funds can be used, opening the door to a wider range of educational formats and career training options.

Expanded K–12 Coverage

Beyond just tuition, eligible K–12 expenses would now include:

  • Curriculum and instructional materials (physical or digital)
  • Tutoring or classes outside the home
  • Fees for dual enrollment or early college programs
  • Test prep and fees (SAT, ACT, etc.)
  • Educational therapies for students with disabilities

These expanded uses would apply to students at public, private, religious, and home schools, a substantial broadening of what counts as education.

Non-Degree Credentials and Licensing

The proposal also supports career and technical education, reflecting broader bipartisan interest in alternatives to the traditional college path. Eligible programs would include training for:

  • Electricians, EMTs, HVAC techs
  • Cosmetologists and aviation maintenance professionals
  • Continuing education for attorneys and other licensed professionals

To qualify, programs must lead to a recognized credential or license, as defined by the Department of Labor, the Department of Veterans Affairs, or other approved authorities.

Why This Matters

The expanded rules could make 529 plans far more flexible, addressing several long-standing limitations:

  • Uncertainty around college: Families who aren’t sure if a child will attend college may feel more comfortable saving, knowing funds can support a broader set of outcomes.
  • Overfunded accounts: If a student receives a scholarship or chooses an alternative path, expanded withdrawal options can reduce the risk of tax penalties on unused funds.
  • Short-term education needs: K–12 families could benefit from earlier access to funds for enrichment, testing, and therapeutic support.

Planning Considerations

If the bill becomes law, the changes would take effect immediately, but implementation may vary by state. Many 529 plans are administered at the state level, and not all states automatically conform to federal rules.

Before using funds under the new provisions, it will be important to:

  1. Check your plan’s policies and your state’s conformity rules
  2. Review the time horizon: Funds used for K–12 expenses have less time to compound
  3. Coordinate with your broader financial plan to ensure tax efficiency and alignment with long-term goals

Bottom Line

These proposed changes mark a meaningful step forward in adapting 529 plans to today’s educational realities. By broadening eligibility to include technical training, licensure, and a wider array of K–12 costs, Congress is signaling a more flexible and inclusive approach to education savings.

As with any tax-advantaged account, the details matter, and so does the timing. For families who are actively saving or revisiting their plans, it’s worth watching how this legislation evolves in the coming weeks.

Hanover can help you evaluate your options, coordinate across state and federal rules, and make sure your education savings strategy stays aligned with your broader financial picture.

Let us know if you’d like a second look at your 529 strategy, or help integrating it into a long-term plan that works, no matter where the path leads.