529 college savings accounts just got better — and then better again!
A 529 college savings account is one in which money is invested for a beneficiary’s future college expenses. The account grows without taxation, and funds are eventually distributed with no federal taxation for the beneficiary’s qualified education expenses. The growth never gets taxed!* This is a huge benefit.
The states each sponsor a 529 plan. Florida’s is the Florida Pre-Paid. A parent goes online during open enrollment in the autumn and chooses an option: tuition only, or tuition and housing. Once enrolled, the parent pays a monthly fee. The benefit is that the child goes off to college with all tuition paid for! Fees and expenses are not covered, and those can be considerable. The prepaid plan is best suited for a conservative investor.
Most states’ 529 plans are of the mutual fund account variety. For example, New Hampshire’s plan is sponsored by Fidelity. You simply open a 529 account with Fidelity, and the funds can be used at any accredited post-secondary education provider in the 50 states — college and graduate school, as well as trade and vocational schools. With this type of 529, the investment return is whatever the underlying mutual funds in the account return. There is therefore substantial investment risk, but there can also be large returns.
With the Tax Cuts and Jobs Act of 2017, up to $10,000 per year of a 529 account could be used for elementary and secondary education tuition. This is tuition only, meaning no fees or other associated education expenses. This continues to be a boon for those with children in private schools.
*That is, in Florida it doesn’t. Other states may tax 529 account distributions.
What’s New?
The 529 got even better with the SECURE Act of 2019. Withdrawals are now also allowed for costs associated with:
- Home schooling — fees, books, supplies, and equipment expenses can come out of a 529 with no taxation.
- Registered apprenticeships — if your child enters an apprenticeship program registered with the Department of Labor, associated fees qualify for a tax-free 529 distribution.
- Student loan repayment — a once-in-a-lifetime $10,000 tax-free distribution from the 529 account (per beneficiary) to reduce or pay off student loan debt. This applies to both federal and private student loans. Each sibling has their own $10,000 lifetime limit.
More Recent Enhancements
SECURE 2.0 Act (2022) — 529-to-Roth IRA Rollovers
A major new benefit: after a 529 account has been open for at least 15 years, unused funds can be rolled over to a Roth IRA for the beneficiary — tax- and penalty-free. The rollover is subject to the annual Roth IRA contribution limits and a $35,000 lifetime cap per beneficiary. This eliminates much of the risk of over-saving in a 529, since excess funds are no longer “trapped” — they can become the beneficiary’s retirement savings.
One Big Beautiful Bill Act (OBBBA, 2025) — Expanded K-12 Coverage
The OBBBA further expanded 529 plans: – The annual K-12 distribution limit increased from $10,000 to $20,000 – K-12 qualified expenses now include non-tuition items such as books, online learning materials, and tutoring fees — not just tuition – Coverage expanded for post-secondary credentialed programs
Further Considerations
Although these enhancements make 529 investing even more attractive, please be sure you don’t defeat your purpose! The primary purpose for saving in a 529 account is college funding. Too many distributions during the pre-college years, and there won’t be enough money left for college!
Interested in working with CameronDowning? Please see our Frequently Asked Questions.
