Prior to 2018, withdrawals from Section 529 plans could be used only to pay for certain higher education expenses at “eligible educational institutions”. For 2018 through 2025, the TCJA amended Code Sec. 529 to allow withdrawals of up to $10,000 annually to pay for pay tuition (and only tuition) at a public, private, or religious elementary or secondary school (i.e., K-12). This K-12 use of Section 529 plan funds was set to expire at the end of 2025.
What is a Section 529 plan
A Section 529 plan is a plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training, or for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school for a designated beneficiary, such as a child or grandchild.
Earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary, such as tuition, fees, books, as well as room and board at an eligible education institution and tuition at elementary or secondary schools. Contributions to a 529 plan, however, are not deductible for federal tax purposes in 2025.
Many states, including Iowa, allow a deduction or credit for contribution to the state’s own 529 plan. Iowa’s ISave 529 plan allows a taxpayer to make direct contributions for students directly through the state’s website with very low fees. For 2025, Iowa allows a deduction up to $5,800 in contributions per taxpayer per student.
The OBBB made the TCJA changes permanent and relaxed the rules limiting the use of Section
529 plan funds for K-12 education. Allowable post-secondary expenses were also expanded to include educational expenses for credentialing for obtaining a “recognized postsecondary credential”.
Plan distributions after July 4, 2025
K-12 expanded distribution options
Section 529 plan funds can be used for the following types of expenses in connection with elementary or secondary education (including home schooling):
- curriculum and curricular materials
- books or other instructional materials
- online educational materials
- certain testing fees
- fees for dual enrollment in an institution of higher education
- certain educational therapies for students with disabilities
Post-Secondary Credentialing Expenses
Section 529 plan funds can be used for a new type of qualified higher education expenses designated as “qualified postsecondary credentialing expenses.”
Such expenses are covered if incurred in connection with enrollment or attendance of a “recognized postsecondary credential program”, which is defined as any program to obtain a “recognized postsecondary credential” if:
(1) the program is included on a state list prepared under Section 122(d) of the Workforce Innovation and Opportunity Act;
(2) the program is listed in the public directory of the Web Enabled Approval Management System (WEAMS) of the Veterans Benefits Administration, or successor
directory such program;
(3) an examination is required to obtain or maintain the credential and the organization recognizes the program as providing training or education which prepares individuals to take such examination; OR
(4) the program is identified by the Treasury Secretary, after consultation with the
Secretary of Labor, as being a reputable program for obtaining a recognized
postsecondary credential.
“Recognized postsecondary credential” is defined broadly in Code Sec. 529(f)(3) to include not only government-issued occupational and professional licenses, but also certifications issued by recognized vocational and trade schools or apprenticeship programs.
Qualified postsecondary credentialing expenses include:
- tuition and fees (including exam and continuing education fees)
- books and supplies
- fees for testing, if such testing is required to maintain a recognized postsecondary credential
- fees for continuing education, if such education is required to maintain a recognized postsecondary credential
Qualified expenses also include any other expense that would be covered if incurred in connection with enrollment at an “eligible educational institution” (generally, traditional institutions of higher education).
For tax years after 2025, OBBB doubles the annual limit on 529 plan funds that can be used for K-12 school expenses from $10,000 to $20,000. Post-secondary expenditures have no such limit.