Spending bill expands uses of 529 plans

The spending and tax bill signed into law July 4 increases the annual limit for K-12 expenses from $10,000 to $20,000 starting in 2026. It allows tax-free withdrawals for tuition, curriculum, books, online learning materials and tutoring for elementary and secondary schools.

Additionally, it allows for the use of 529 funds for educational therapies provided by licensed professionals and for postsecondary credentialing and career training programs not now offered by traditional colleges and universities.

Here’s a detailed breakdown:

• Tutoring: Tutoring expenses are now covered, provided the tutor is a licensed teacher, current/former teacher at an eligible institution, or a subject matter expert.

• Testing fees: Fees for standardized tests, AP exams, and college admissions tests (like the SAT or ACT) are also covered.

• Educational therapies: Expenses for educational therapies for students with disabilities, provided by licensed professionals, are now included.

• Postsecondary credentialing and career training: 529 funds can now be used for postsecondary credentialing programs, such as licenses and certifications. The bill also covers expenses related to career training programs.

• Apprenticeship programs: The Secure Act of 2019 already allowed 529 programs to be used for apprenticeship expenses. The program must be registered with the U.S. Department of Labor’s National Apprenticeships Act to qualify for tax-free withdrawals.

Caution: Many states have their own rules and regulations regarding the tax treatment of these withdrawals. It’s crucial to consult with a tax professional or the state provider of a 529 program to understand the specific implications before making any decisions about using your 529 plan.

Barry Lisak is an IRS enrolled agent specializing in personal and small business taxes for 30 years. Any questions can be directed to him at 516-829-7283, or mrbarrytax@aol.com.