New Tax Law Makes 529 Plans Better, Broader, and More Flexible Than Ever

As one of the earliest “Wealth Management Lawyers” to publish and speak at a national level on 529 College Savings Plans to thousands of Licensed Advisors, I’ve followed their evolution from simple tuition-savings vehicles to today’s fully modernized education and training platforms.

Under the One Big Beautiful Bill Act (OBBBA), 529 plans have become dramatically more powerful — especially for families with two, three, or more children, and even for parents who may want to enhance their own careers later in life.

Below is a clear update on the new rules and practical strategies for maximizing a 529 plan across a full family system.

How 529 Plans Work (Quick Overview)

529 plans are state-administered, tax-advantaged accounts where:

• Contributions grow tax-free.
• Withdrawals are tax-free when used for qualifying educational expenses.
• There is a federal annual contribution limit that follows gift-tax rules:
  • $19,000 per beneficiary in 2025 (or $38,000 for couples annually).
  • Up to $95,000 may be contributed at once under the five-year “superfunding” rule.

If an individual contributes more than the annual gift tax exclusion of $19,000 to a beneficiary’s 529 plan in a single year, the excess must be reported on a federal gift tax return, though no tax is usually owed unless you’ve already used up your lifetime exemption.

A unique feature of 529 plans is the ability to make a large “front‑loaded” contribution and elect to spread it evenly over five years for gift tax purposes.

For example, you could contribute up to $95,000 in 2025 to one beneficiary’s account and, by making the five‑year election, treat it as though you had given $19,000 per year for five years.

This preserves your annual exclusions while still allowing a substantial lump‑sum contribution, and you MAY still receive the full state income tax deduction for the entire amount contributed if your state allows it.

Account owners maintain full control and may change beneficiaries among family members at any time without penalty. ^[i]

Major OBBBA Expansions — The New 529 Superpowers

1. Career, Trade & Technical Programs

529 money may now be used for hundreds of credential programs: HVAC, plumbing, cosmetology, aviation maintenance, dental hygiene, welding, food safety, etc., so long as the program is accredited or WIOA-recognized.

2. Professional Exams, Licensing & Continuing Education

Students and adults can use 529 funds tax-free for:

• CPA exam fees
• Bar exam prep & licensing fees
• CE requirements for doctors, pharmacists, teachers, engineers, financial professionals, and more

This opens the door for parents to use leftover 529 funds for their own licensing upgrades.

3. Expanded K–12 Use

Starting Jan. 1, 2026, families can spend $20,000 per student per year for K–12 tuition (up from $10,000).
Starting July 4, 2025, 529 funds can also pay for:

• Curriculum materials
• Educational platforms
• Standardized-testing fees (SAT, ACT, AP)
• Tutoring
• Dual-enrollment college courses
• Approved therapies for students with disabilities

4. Roth IRA Rollover Option

Up to $35,000 per beneficiary in unused funds may be rolled into a Roth IRA (subject to annual Roth caps and the 15-year rule).

A 529 plan is a tax-advantaged savings program in the United States designed to help families save for future education expenses, including college, K–12 tuition, apprenticeships, and in some cases student loan repayment.

The plans were created in 1996 under Section 529 of the Internal Revenue Code, originally established by the Small Business Job Protection Act.

Although authorized at the federal level, each state operates and manages its own 529 plan, often contracting with financial institutions to administer investments, set contribution rules, and determine available portfolios.

Many states offer special incentives—most notably state income-tax deductions or credits—but these benefits usually apply only if residents contribute to their own state’s proprietary plan.

As a result, while the federal tax treatment is uniform, the financial advantages of a 529 plan can vary significantly depending on the state’s specific rules and incentives. ^[ii]

Example: If you contribute $10,000 to a Colorado CollegeInvest 529 plan, the full amount is deductible from your Colorado taxable income because Colorado allows a deduction for contributions to its own 529 program.

With the state’s flat income tax rate of 4.40%, your taxable income is reduced by $10,000, lowering your Colorado tax liability by $440.

If you were already scheduled to receive a $1,000 state tax refund based on your prior withholding or estimated payments, the additional $440 reduction in tax liability would simply increase that refund. As a result, your state tax refund would rise from $1,000 to $1,440. ^[iii]

How a Family With Three Children Can Use 529 Plans Strategically

The new rules make 529 plans an intergenerational education asset. Below is how a typical family with three children can maximize leftover funds without incurring taxes or penalties.

Scenario: Family With Three Children (Child A, Child B, Child C)

Step 1 — Fund One 529 or Multiple 529s

Parents can hold:

• One 529 per child, or
• One large family master 529 and simply change the beneficiary as needed.

Either method works.

Strategy 1: Share the Funds Among Siblings

If one child receives scholarships, attends a low-cost program, or chooses a nontraditional path, the leftover funds may be reassigned.

Tax-free beneficiary changes are allowed among:

• Siblings
• Step-siblings
• Parents
• Grandparents
• First cousins
• Aunts/uncles
• Spouses of all the above

Example:
Child A uses only half of their 529. Parents can immediately designate Child B or C as the beneficiary for the remainder — no tax, no penalty.

Strategy 2: Use Leftover Funds for Parents’ Education or Professional Advancement

Under the OBBBA, parents may use leftover funds for:

• State bar exam fees
• CPA exams
• Real-estate licensure
• Teaching certification
• Medical, dental, or pharmacy CE
• CE for financial planners, engineers, or attorneys
• Professional recertification programs
• Approved trade licenses
• Graduate school (MBA, JD, MS, MA, etc.)
• Online continuing education that meets accreditation standards

This is a major benefit for mid-career parents who want to upgrade credentials without paying out of pocket.

Strategy 3: Roll a Portion Into Roth IRAs for Each Child

If a child doesn’t need all their 529 funds, parents may roll up to $35,000 into the child’s Roth IRA if:

• The 529 has existed for 15+ years
• The funds meet Roth contribution limits per year

This allows each child to begin adulthood with a tax-free retirement foundation, a huge wealth advantage.

Strategy 4: Use Funds for Trade Credentials or Alternative Career Paths

Because each child may choose a different educational route, parents now have far more flexibility:

• Child A attends college → 529 pays tuition and room & board.
• Child B attends a two-year trade program → 529 pays tuition and tools.
• Child C pursues professional licensing (aviation, cosmetology, dental hygiene) → 529 pays licensing and credentialing fees.

Leftover cross-child efficiency is extremely high under the new rules.

Strategy 5: Apply 529 Funds to K–12 Education for All Three Children

Parents may spend:

• $20,000/year/child on tuition (starting 2026)
• Unlimited amounts on approved curriculum materials, tutoring, and testing (starting 2025)

This can relieve thousands of dollars of annual private-school or supplemental-learning costs.

Putting It All Together — Example of Full Family Use Over Time – Sample Strategy

Year 1–10:

Parents fund three 529s.
Child A uses most of theirs, Child B uses some, Child C uses very little.

Year 10:

Parents switch leftover funds from Child C to Child B, supporting a trade-credential program.

Year 12:

Parents switch leftover funds from Child B to themselves to pay for CE and professional exams.

Year 15:

Additional leftover funds are rolled into Roth IRAs for Child A and Child C.

No taxes. No penalties. Maximum family benefit.

**Bottom Line:

529 Plans Are Now Multi-Child, Multi-Generation Education Funds**

The OBBBA has transformed 529 plans into:

• Education savings plans
• Career and licensing development plans
• K–12 support plans
• Retirement-seeding accounts
• Intergenerational family finance tools

For a family with multiple children, 529 plans now offer unmatched flexibility and long-term value — including options for parents to benefit later in life. ^[iv]

As a formerly licensed invesment advisor, lawyer and professional who was ranked #2 in the world as a wealth management influencer, I can say that laws are very dynamic and that there are various ways to use your 529 today that were not possible years ago.

Try to stay on top of these rules, and all of your children and grandchildren and family members may benefit.  ^[v]

** Consult with a Locally Licensed Professional before making any important decisions. George Mentz was ranked #2 in the world as a Wealth Management Inluencer. An Interview with George Mentz, JD, MBA, CILS, and CWM - Onalytica

_______________
Commissioner George Mentz JD MBA CILS CWM® holds a Doctor of Jurisprudence (JD), and an MBA from ABA and AACSB Accredited programs. Mentz is the first in the USA to rank as a Top 50 Influencer & Thought Leader in: Management, PM, HR, FinTech, EdTech, Wealth Management, and B2B according to Onalytica.com and Thinkers360.com. George Mentz JD MBA CILS is a CWM Chartered Wealth Manager ®, global speaker - educator, tax-economist, international lawyer and CEO of the GAFM Global Academy of Finance & Management ®. The GAFM is a EU accredited graduate body that trains and certifies professionals in 150+ nations under standards of the: US Dept of Education, ACBSP, ISO 21001, ISO 991, ISO 29993, QAHE, ECLBS, and ISO 29990 standards. Mentz is also an award-winning author and award winning graduate law professor of wealth management of one of the top 25 ranked law schools in the USA and is founder of the ChE Chartered Economist ® certification & education programs. George Mentz has served as a White House Commissioner, and has served the Civil Service Commission for Police and Fire and the Airport Commission (Home of Space Force). Comm'r Mentz is one of the few lawyers who has ever earned Wall Street Firm licenses of Series 7,63, and 65 , served as a Judge for the ABA, has led civil litigation cases in fraud and defamation, as well as testified as an expert in FINRA/NASD financial arbitration

^[i] Topic no. 313, Qualified tuition programs (QTPs) | Internal Revenue Service

^[ii] 529 Plans: Questions and answers | Internal Revenue Service

^[iii] Income Tax Topics: CollegeInvest Contribution Subtraction | Department of Revenue - Taxation

^[iv] Saving for Education - 529 Plans | Investor.gov