Overview
It’s not just a crying baby keeping many new parents up at night—rising education costs have made planning for a child’s future a top concern. 
Section 529 accounts have long served as a powerful tax‑advantaged tool to help families save for education, allowing investment earnings to grow tax‑free when used for qualifying expenses.
What Is a Section 529 Account?
A 529 account, named for the section of the Tax Code under which such accounts have been granted tax favored treatment since 1996, offers benefits when funds are used for education-related expenses.
While Congress has tinkered with rules related to the accounts from time to time, the core benefit remains the same: investment earnings used for qualified education expenses are not subject to federal income tax and are generally exempt from state income tax as well.
Expanded Qualified Expenses Under Recent Law Changes
Section 529 accounts were originally limited to state-sponsored prepaid college tuition plans. However, lawmakers quickly modified the Tax Code to add general college tuition, fees, and books, as well as room and board at eligible educational institutions, as qualifying expenses.
More recent changes added K-12 tuition as a qualifying use of funds to a limited extent. Most recently, the One Big Beautiful Bill Act (OBBBA) further expanded the list of qualifying expenses and even created a pathway for partial funding of the beneficiary’s eventual retirement.
Under OBBBA, the definition of qualifying expenses broadened as follows:
- The withdrawal limit for payment of K-12 education expenses increased from $10,000 to $20,000 annually.
- Qualified K-12 expenses are no longer limited to tuition, but also include other education-related costs, such as curriculum and instructional materials, standardized test fees, tutoring, dual enrollment fees, and educational therapies for students with disabilities.
- Qualified higher education expenses are expanded to include post-secondary credentialling and licensing programs, such as trade school certifications.
- The ability to roll over 529 account funds into Achieving a Better Life Experience (ABLE) accounts for disabled beneficiaries is now permanent.
- Unused 529 account assets may now be rolled over to a Roth IRA for the beneficiary to a limited extent.
These changes make 529 accounts more attractive to those concerned about whether a young child may later be diagnosed with a disability or decide not to pursue a traditional college education. From a planning standpoint, the fear of funding an account that may not be used for such an education is lessened due to the additional qualifying uses of funds.
Very few investment tools allow investment earnings to fully escape income taxation as occurs when funds from section 529 accounts are used for qualifying expenditures.
Using 529 Accounts for Tax‑Efficient Family Wealth Planning
High net-worth individuals may wish to accelerate contributions to a 529 account to maximize the runway for tax-free investment growth. Internal Revenue Code provisions allow a person to front-load up to five years’ worth of annual exclusion gifts to a 529 account at once, without triggering gift tax.
Instead, the contributions may be treated as being made evenly over a five-year period. This means that in 2026, up to $95,000 can be contributed by an individual into a beneficiary’s section 529 account without utilizing any portion of the donor’s lifetime estate and gift tax exemption.
While this amount may seem large, the growing list of eligible expenses and the option to transfer account assets from one beneficiary to another within the beneficiary’s broadly defined family makes aggressive 529 funding a practical tool to reduce taxes and build long-term family wealth.
