529 Education Planning Updates with the Introduction of OBBBA

Smarter 529 Strategies, Roth Rollovers, and Mistakes to Avoid

Not long ago, a 529 plan was a fairly simple tool. You saved for college, you paid for college, and if your child skipped college, you worried about what to do with the money.

That picture has changed. Over the past few years, Congress has steadily expanded what 529 plans can do. The SECURE 2.0 Act opened the door to Roth IRA rollovers, and the One Big Beautiful Bill Act (OBBBA), signed in July 2025, broadened qualified expenses and raised the K-12 withdrawal limit.

For families, that flexibility may make 529s more useful than ever. It also creates more room for mistakes. Here’s what’s new, how some families are putting it to work, and where people still trip up.

What’s New

A higher K-12 limit. Starting in 2026, families can withdraw up to $20,000 per year per beneficiary for K-12 expenses, up from $10,000.

Broader K-12 expenses. K-12 withdrawals are no longer limited to tuition. Qualified expenses now include items such as curriculum materials, books, tutoring, standardized test fees, dual-enrollment costs, and certain educational therapies for students with disabilities.

Credentials and workforce training. Recognized postsecondary credential programs, including many licensing and certification programs, can now be paid for with 529 funds. That’s a meaningful change for students headed into skilled trades or professional certifications rather than a four-year degree.

ABLE rollovers made permanent. Rollovers from a 529 to an ABLE account for a beneficiary with a qualifying disability, which had been set to expire, are now permanent, subject to annual ABLE contribution limits.

Roth Rollover Planning: The Fine Print Matters

Since 2024, beneficiaries have been able to roll unused 529 money into a Roth IRA in their own name. It’s one of the most talked-about features of SECURE 2.0, and it can be a useful safety valve. But the rules are tight:

• The 529 account must have been open for at least 15 years.
• Contributions made in the last five years, and the earnings on them, aren’t eligible.
• There’s a $35,000 lifetime cap per beneficiary.
• Annual rollovers count toward the beneficiary’s Roth IRA contribution limit, and the beneficiary needs earned income at least equal to the amount rolled over.

Because of the annual limit, reaching the full $35,000 typically takes several years. And because the 15-year clock matters, opening an account early, even with a modest balance, may preserve future options. Questions remain about whether changing beneficiaries resets that clock, and state tax treatment of these rollovers varies. This is an area to review with a tax professional before acting.

Advanced Funding Strategies

Front-loading with five-year gift averaging. The annual gift tax exclusion is $19,000 per recipient in 2026. A special election lets donors contribute up to five years’ worth at once, $95,000 per individual or $190,000 per married couple, without using lifetime exemption, provided no additional gifts go to that beneficiary during the five-year period. Front-loading gives the money more time to potentially grow, though it also means more exposure to market swings.

Grandparent-owned accounts. Under the simplified FAFSA, distributions from grandparent-owned 529s are no longer reported as student income. That has made grandparent ownership more attractive for some families, though the CSS Profile used by many private colleges may still consider these assets.

Using 529s for K-12 strategically. With the higher limit, some families may consider using 529 funds for private school or tutoring. Keep in mind that money withdrawn early has less time to compound for college, and not every state treats K-12 withdrawals as qualified for state tax purposes.

Common Mistakes Families Still Make

Mismatched timing. Withdrawals should generally occur in the same calendar year as the expense. Paying January tuition with a December withdrawal can create headaches.

Double-dipping on tax benefits. You can’t use the same expenses to justify a tax-free 529 withdrawal and claim the American Opportunity Tax Credit. Coordinating the two may help maximize available benefits.

Overlooking state rules. Many states offer a deduction for contributions to their own plan, and some may recapture that benefit if funds are rolled out of state or used for expenses the state doesn’t recognize.

Exceeding room and board limits. For students living off campus, qualified room and board is generally capped at the school’s published cost-of-attendance allowance.

No successor owner. If the account owner passes away without naming a successor, the account may end up in probate or with someone you didn’t intend. It takes a few minutes to fix.

Waiting too long to start. Time is one of the most valuable inputs in any savings plan, and now it also matters for Roth rollover eligibility.

The Bottom Line

Today’s 529 plan is a far more flexible tool than the one many parents opened a decade ago. It may help cover private school, trade credentials, college, and even a head start on retirement savings. But flexibility works best with a plan behind it. A conversation with your financial and tax professionals may help you align your 529 strategy with the rest of your family’s goals.

Important Disclosures: This material is provided for general informational and educational purposes only and should not be construed as tax, legal, or investment advice or a recommendation of any specific strategy or product. Before investing in a 529 plan, investors should carefully consider the investment objectives, risks, charges, and expenses, which are described in the plan’s offering statement; read it carefully before investing. Investors should also consider whether their home state or the beneficiary’s home state offers tax or other benefits available only through that state’s plan. 529 plans are not FDIC insured, are not bank guaranteed, and may lose value. Withdrawals for nonqualified expenses may be subject to income tax and a 10% federal penalty on earnings, and state tax treatment varies. Tax laws are complex and subject to change; information reflects our understanding of current law as of the date of publication. Please consult a qualified tax advisor and financial professional regarding your situation. Evertern Wealth does not provide tax or legal advice.