What the OBBBA Means for Your 529 Educational Plan
The “One Big Beautiful Bill Act” (OBBBA) has transformed these accounts into a more flexible and powerful tool for a broader range of educational pursuits.
K-12 Education Is Now More Flexible Than It Used To Be
The OBBBA significantly expands the definition of a “qualified expense” for K-12 schooling. While previously limited to just tuition for this age group, the law now allows for tax-free withdrawals for a broader array of expenses. This includes:
- Curriculum materials and books
- Fees for nationally standardized tests (like the SAT or ACT)
- Dual enrollment fees for college courses taken in high school
- Online educational materials and tutoring, which could include software
- Specialized therapies for students with disabilities
This expansion of qualified expenses brings the K-12 rules closer to the current higher education rules.
In addition, the annual withdrawal limit for K-12 education was doubled, increasing from $10,000 per year per beneficiary to $20,000 per year [Source: my529]. This is especially beneficial if you have a child or grandchild going to a private high school. You can deposit into the 529 plan and then withdraw it for tuition. 529 plan tax benefits vary by state. Be sure to check your state’s rules.
(As a reminder, there are no annual withdrawal limits for qualified higher education expenses. That detail did not change with the passing of this new bill.)
South Carolina offers a generous state tax deduction for contributions to its 529 plan, called Future Scholar. SC residents can deduct 100% of their contributions to a Future Scholar account from their South Carolina state income taxes. (Which is not the case in every state)
Here are some key details:
- No Cap: There is no annual contribution cap for the deduction. You can deduct the full amount of your contributions, up to the maximum account balance limit.
- In-State Plan: The deduction is only available for contributions made to the South Carolina-sponsored plan, Future Scholar. Contributions to 529 plans from other states are not eligible for this deduction.
- Contribution Deadline: You have until the tax-filing deadline (typically April 15th) to make a contribution for the previous tax year and still claim the deduction on that year’s state tax return.
Workforce and Career Development- I love this one.
In a world where career paths are constantly evolving, the OBBBA acknowledges the importance of lifelong learning. It now allows for tax-free withdrawals to cover costs for a variety of non-traditional educational programs, including:
- Tuition and fees for certificate programs, trade schools, and other credentialing programs authorized under the Workforce Innovation and Opportunity Act [Source: Invest529].
- Testing fees for professional certifications and licenses.
- Continuing education costs required to renew a credential. HA! This would even apply to me with my CFP®, CIMA®, and other certifications!
Permanent ABLE Account Rollovers
The OBBBA makes permanent the ability to roll over funds from a 529 plan to an Achieving a Better Life Experience (ABLE) account. This provision, which was previously set to expire at the end of 2025, provides more certainty and flexibility for families saving for a loved one with a disability.
These changes make 529 plans a more versatile tool for saving for a variety of educational and career paths, not just traditional college degrees.
Separate from the topic of this FFF, some of our thoughts were shared in a recent ‘MarketWatch’ article – Check that out here!
If you have any questions about your specific situation, please don’t hesitate to contact us.
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