529 Plans May Get Even More Flexible Under Trump Tax Bill

President Donald Trump’s tax package includes a provision that could revolutionize how families utilize 529 savings plans. This provision aims to broaden the scope of qualified expenses that can be covered by 529 funds, extending beyond traditional college expenses to include SAT fees, trade school certifications, and more.

The tax legislation, known as the “big, beautiful bill,” recently passed the House and has now moved to the Senate for further debate. While much attention has been focused on the bill’s overall tax and spending changes, the expansion of 529 plans has the potential to significantly impact how families save for education.

Originally designed to assist families in saving for college, 529 plans allow contributions to grow tax-deferred, with tax-free withdrawals permitted for qualified education expenses such as tuition, fees, and room and board. With over 16 million Americans currently utilizing 529 accounts, the total assets exceeding $500 billion, according to the College Savings Plan Network.

In recent years, the scope of qualified expenses for 529 plans has expanded. For example, the 2017 Tax Cuts and Jobs Act extended eligibility to include K-12 private school tuition, and the 2019 SECURE Act allowed up to $10,000 for student loan repayment.

Under the latest version of the Trump tax bill, families would be able to use 529 funds for a broader array of K-12 expenses, including curriculum materials, books, online education resources, tutoring services, and standardized test fees. The House version even included a homeschooling component, covering expenses like educational software and dual enrollment program fees, though this is not currently included in the Senate’s version.

One of the most impactful changes proposed is allowing tax-free withdrawals for tuition and materials for postsecondary credentialing programs. This expansion would make vocational and certificate programs eligible for tax-free withdrawals, including training in fields like HVAC repair and cosmetology, as well as continuing education credential fees.

This expansion of 529 plans could be particularly significant in light of the shifting landscape of higher education. With rising student loan debts and the increasing cost of traditional four-year degrees, many are reconsidering the value of alternative educational pathways. By including vocational and credentialing programs in the scope of qualified expenses, 529 plans could encourage more families to save for these alternatives and start saving earlier.

Lawmakers are rethinking what constitutes “higher education” by expanding the definition of qualified education expenses. This move would place skilled trades and credentialing programs on equal footing with traditional degrees, recognizing them as legitimate pathways to successful careers deserving of tax advantages.

Senate Majority Leader John Thune has expressed the urgency of passing the bill quickly, aiming for a vote before Trump’s desired July 4 deadline. With bipartisan support for expanding 529 eligibility to include credentialing programs, the final bill could have a significant impact on how families save for education in the future.