OBBBA - Section 529

Expansion of IRC §529 Qualified Higher Education Expenses

The OBBBA makes two significant changes to the definition of “Qualified Higher Education Expenses” under IRC §529.Under §529, taxpayers may contribute after-tax dollars to the account, and earnings grow tax-free if withdrawals are used for qualified higher education expenses.

1) Elementary and Secondary School Expenses

For withdrawals made after July 4, 2025 (the enactment date of OBBBA), additional costs related to a public, private, or religious elementary and secondary school are now considered “Qualified Higher Education Expenses.”

Previously, under TCJA, up to $10,000 could be withdrawn tax-free only for elementary and secondary school tuition. Under OBBBA, the $10,000 tax-free withdrawal limit from a §529 plan is expanded beyond tuition to cover the following K–12 expenses:

• Curriculum and curricular materials;

• Books or other instructional materials;

• Online educational materials;

• Tuition for tutoring or educational classes outside of the home (including tutoring facilities), provided the tutor/instructor is not related to the student and either:

  • Is licensed as a teacher by the state;

  • Has taught at an eligible education institution; or

  • Is a subject matter expert in the relevant subject;

• Fees for nationally standardized norm-referenced achievement tests, advanced placement exams, or any exams related to college or university admission;

• Fees for dual enrollment in an institution of higher education; and

• Educational therapy for students with disabilities (including occupational, behavioral, physical, and speech therapy) provided by a licensed or accredited professional or institution.

  
  

In addition, beginning in the 2026 tax year, the annual tax-free withdrawal limit for K–12 education expenses increases from $10,000 to $20,000 per beneficiary.

2) Credential Program Expenses

OBBBA also allows tax-free withdrawals from §529 accounts for qualified postsecondary credentialing expenses, effective for withdrawals made after July 4, 2025.

Qualified Postsecondary Credentialing Expenses are defined as:

• Tuition, fees, books, supplies, equipment, or other expenses (such as computers and software used primarily for school) required for a designated beneficiary’s enrollment or attendance in a “postsecondary credential program” as defined in IRC §529(f)(2), or that would otherwise be considered higher education expenses if the student were enrolled at an eligible educational institution;

• Examination fees required to obtain or maintain a recognized credential;

• Continuing education fees required to maintain a recognized postsecondary credential.

  
  

Recognized Postsecondary Credential means any of the following:

• An industry-recognized postsecondary occupational credential;

• A certificate of completion from an apprenticeship program registered with and certified by the Secretary of Labor under the National Apprenticeship Act;

• A state or federal occupational or professional license;

• A recognized postsecondary credential as defined in Section 3 of the Workforce Innovation and Opportunity Act.