Education savings is a meaningful part of many families’ financial plans, and 529 plans remain one of the most effective and tax-efficient ways to prepare for future college or K–12 expenses. As tuition costs continue to rise, clients often want to understand how 529 plans work, how much they should save, and what happens if their child’s path changes. Recent updates through the SECURE Acts and new 2025 legislation have expanded the flexibility of 529 plans, giving families additional confidence that these funds can adapt to their needs over time.
This article explains how recent changes to 529 plans—through the SECURE Acts and the 2025 One Big Beautiful Bill Act—have expanded flexibility for education savings. It outlines key updates including Roth IRA rollover options, increased K–12 limits, and broader coverage of apprenticeship and credentialing programs. You’ll also learn how scholarships interact with 529 plans and why these updates may reduce common concerns about unused funds.
What Is a 529 Plan and Why Do Families Use Them?
A 529 college savings plan is one of the most common and tax efficient ways to start tackling education savings goals. They allow funds to grow tax-free and to take tax-free withdrawals if the funds are used for qualified education expenses. In addition, many states offer income tax deductions or tax credits for contributions. However, many people still express concern and questions about these accounts because of the uncertainty the future inevitably holds.
Common questions our clients frequently ask us include:
- How much should I set aside?
- What if my child does not go to college?
- What if my child goes to college but gets a good scholarship?
At PDS, we typically review the first question through the scope of each client’s personalized financial plan and goals. Through careful review and discussions, we help our clients determine the appropriate investment vehicle for college savings, how much they should save, and identify if their given time horizon until college is adequate to meet these goals. This has proven to be very effective at determining how much someone may need to set aside. Unfortunately, this does not alleviate all the worries associated with funding an account which may not be utilized to its fullest extent. Thankfully, there have been various tax laws over the last 5-10 years to address these concerns many parents face.
How SECURE Act 1.0 and SECURE Act 2.0 Expanded 529 Plan Flexibility
Secure Act 1.0 was signed into law in 2019 and its successor law, SECURE 2.0 Act was signed in 2022. Both contain provisions which allow much greater flexibility for funds within 529 plans. A few of the key changes are:
- Allows 529 funds to be converted to a Roth IRA, limits apply (effective January 2024)
- This change has been phenomenal for many people as it allows many young adults to jumpstart retirement savings during years where earnings are traditionally lower. As we know, contributions made in these early years have the potential to grow exponentially due to the power of compound interest.
- Additionally, it opens the door to additional strategies where it may make sense to intentionally overfund 529 plans to make an even bigger impact in your children’s financial lives.
- Added certain apprenticeship programs as a qualifying education expense
- Reinforced consistency regarding scholarship exemption for 529 plans (additional information below)
2025 One Big Beautiful Bill Act: New 529 Plan Benefits
More recently, The One Big Beautiful Bill Act (OBBBA), was signed into law on July 4th, 2025, and has further expanded how 529 plans can be used. A few key provisions are:
- Increased the annual limit for K-12 expenses to $20,000 (from $10,000) and expanded what is qualified as an eligible educational expense
- 529 funds can now cover expenses for industry-recognized credentials and licensing programs (CDL, plumbing programs, certification exams for professional services)
How Scholarships Affect 529 Plans: Withdrawal Rules & Tax Implications
The final concern we hear quite often is parents being worried about paying penalties on funds in 529 plans if their children get scholarships for college. Fortunately, you are allowed to withdraw funds from a 529 plan penalty free (though earnings are taxed) if your child is the recipient of a tax-free scholarship. This is a lesser-known strategy with a few restrictions to be aware of but has provided relief to many individuals.
Why These 529 Plan Changes Matter for Your Financial Plan
The legislative landscape in recent years has been phenomenal for 529 plans as multiple laws have been passed to address the worries many parents have when thinking about saving for their children’s future education. PDS continues to watch as these laws get implemented so we can help our clients take advantage of the new strategies as they are presented.
If you have questions about how these updated 529 plan rules apply to your family’s education savings strategy, our team is here to help you understand your options and make decisions with confidence.
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