New 529 Plan Rules for 2025–2026: What Families Need to Know

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The latest federal spending bill and recent IRS updates have expanded how families can use 529 plan funds. A 529 plan is a tax-advantaged education savings account that allows families to invest money for future education costs. In addition to tax-deferred growth, many states offer tax deductions on 529 contributions, making these plans a powerful tool for both education funding and tax planning. The latest updates build on those benefits by making 529 plans more flexible for K–12 education, nontraditional learning paths, and even long-term retirement planning.

At the same time, traditional withdrawal rules still apply, and state conformity may lag behind federal updates. Understanding how these changes apply to your specific education and tax goals is where working with an experienced advisor becomes especially valuable.

For families already saving, or considering starting, a 529 plan, these updates may influence how you budget for education expenses and structure your long-term financial planning. A conversation with our team can help clarify how these changes affect your current savings strategy, contribution levels, and future withdrawals.

For IRS guidance on 529 plan definitions and qualified withdrawals, see the IRS 529 Plans Questions and Answers.

Key Changes to 529 Plans Starting in 2025–2026

Recent legislation expands both the annual K–12 withdrawal cap and the list of eligible expenses, giving families more flexibility in how they use 529 plan funds.

• The annual K–12 withdrawal limit doubles from $10,000 to $20,000 per student, effective 2026.
• Newly eligible expenses now include:
  • Standardized test fees
  • Vocational and credentialing programs
  • Structured homeschool curriculum and instructional materials
  • Academic tutoring
  • Educational therapies, including ADHD-related support
• There are also expanded options for non-college career training programs, along with more clarity and flexibility for moving unused 529 funds to a Roth IRA under SECURE 2.0 rules.

In practice, these updates allow families to use 529 plans for a broader range of learning paths – whether a student attends private school, pursues vocational training, learns at home, or takes an alternative route after high school. 

From a tax-planning perspective, these changes may affect how families consider contribution and withdrawal timing as education needs evolve. A review of your contribution levels and expected expenses as part of your year-end tax planning strategies can help identify opportunities to make these rules work to your advantage.

How Families Might Use the New Rules: Four Examples

These examples show how families might apply the expanded 529 benefits in real situations. Each scenario highlights planning opportunities that may apply to your family’s situation.

Example 1: Private school tuition with added tutoring

A family paying for private school also invests in tutoring to support reading comprehension. Under the new rules, they can use up to $20,000 per year for K–12 education expenses beginning in 2026, and tutoring now qualifies as an eligible use. They split their 529 withdrawal among tuition, tutoring, and test-prep fees — all within the annual cap.

What to keep in mind:

• Withdrawals and expenses must occur in the same tax year
• Families should track how much of the $20,000 annual cap they’ve used

Example 2: ADHD or learning-difference support

A student with ADHD benefits from specialized tutoring and executive-function coaching throughout the school year. Under the expanded rules, certain educational therapies and structured academic support now qualify as eligible 529 expenses. The family uses their plan to offset costs that previously required out-of-pocket spending.

What to keep in mind:

• Keep documentation such as invoices, provider descriptions, and diagnosis information
• Eligibility is determined at the federal level, but some states may take longer to formally adopt expanded definitions

Example 3: Nontraditional path — vocational training

A high school graduate decides that a four-year college isn’t the right fit and instead begins full-time work or enrolls in a vocational program such as HVAC certification, cosmetology school, or EMT training. Under the expanded rules, many credentialing programs are now eligible 529 expenses. Families can use their plan for tuition, testing fees, and required materials. 

What to keep in mind:

• Programs must meet IRS eligibility requirements for vocational or credentialing studies
• Withdrawals must match the tax year in which expenses occur
• Roth IRA rollovers remain subject to contribution limits and earned-income rules

Example 4: Unused funds rolled into a Roth IRA

A student earns scholarships and doesn’t need the full balance in their 529 account. Instead of risking taxes or penalties on unused funds, the family begins transferring a portion of the remaining balance into the beneficiary’s Roth IRA under the SECURE 2.0 rules. Over several years, they roll up to the $35,000 lifetime limit, giving the beneficiary a meaningful early start on retirement savings. For beneficiaries entering the workforce, any remaining funds can later be rolled into a Roth IRA if they have earned income, helping them start building retirement savings early.

What to keep in mind:

• The 529 must be open for at least 15 years, and contributions from the last 5 years cannot be rolled over
• The beneficiary must have earned income equal to or greater than the rollover amount
• Annual Roth IRA contribution limits still apply

A CPA-led review can help identify which strategies align best with your family’s education and tax priorities.

SECURE 2.0: How 529-to-Roth IRA Rollovers Work

For many families, the SECURE 2.0 rollover provision is one of the most impactful changes in recent years. It allows unused 529 funds to be repositioned for a beneficiary’s future retirement savings.

This strategic option reduces the fear of overfunding a 529 and creates a pathway to seed retirement savings early.

Here are the key requirements to be aware of:

• Lifetime rollover limit: $35,000
• The 529 must be at least 15 years old
• Contributions (and earnings on those contributions) from the past 5 years cannot be rolled over
• Rollover amounts count toward the annual Roth IRA contribution limit
• The beneficiary must have earned income equal to or greater than the rollover amount

Mapping out a rollover timeline in advance can prevent costly timing issues. Roth IRA rollovers are subject to multiple IRS limitations, so working with a tax advisor can help ensure the transition is executed correctly.

How to Use the New Rules Correctly: Withdrawal Mechanics Still Matter

Even with expanded flexibility, the fundamentals of 529 withdrawals remain unchanged—and they still determine whether your distributions qualify for tax-free treatment. Families should continue to follow the core mechanics that have always applied.

Key rules to remember:

• Withdrawals must match expenses paid in the same calendar year, making it especially important to coordinate distributions with key IRS filing deadlines.
• Families should retain receipts, invoices, therapy documentation, or curriculum confirmations
• The Form 1099-Q issued by the plan must reflect correct timing and beneficiary information
• Expenses not recognized by your state may trigger state-level taxes or recapture

Staying disciplined with documentation and timing is essential, especially as more categories of expenses become eligible for reimbursement. If you’re planning multiple withdrawals throughout the year, coordinating them with your tax advisor can help ensure everything aligns correctly.

How to Avoid Penalties Under the New 529 Rules

Penalties typically arise when withdrawals don’t meet federal or state requirements. As the list of eligible expenses expands, it is even more important to confirm that each withdrawal complies with both sets of rules.

Families should avoid:

• Exceeding the new $20,000 K–12 limit
• Using funds for therapies or tutoring that their state does not recognize as qualified
• Withdrawing after the tax year in which expenses were incurred
• Using funds for lifestyle or extracurricular expenses that remain unqualified
• Rolling funds into a Roth IRA without verifying beneficiary earned income

Most penalties are entirely preventable with careful timing and documentation. If you’re unsure whether an expense qualifies or how to support it with proper records, a consultation with our team can help you avoid unexpected tax liabilities or state-level recoupments.

How the New 529 Rules Apply in Virginia

Virginia often, but not always, aligns with federal 529 rules. As the list of eligible expenses expands, families should pay close attention to how the state interprets these updates. In some cases, expenses that qualify at the federal level may not yet qualify in Virginia, which can affect whether withdrawals remain tax-free at the state level.

Considerations for Virginia residents:

• Virginia may not automatically adopt federal changes related to tutoring, therapy, or homeschool curriculum
• The state’s definition of qualified higher education expenses may differ from federal definitions
• Withdrawals used for expenses that Virginia does not recognize as qualified may trigger state income tax or require recapture of prior deductions
• Families should check for conformity updates through Virginia529 and the Virginia Department of Taxation

Given the timing of legislative sessions, state guidance may lag behind federal changes. Reviewing state-level updates before withdrawing for newly eligible uses is recommended. Our team can help you evaluate whether your planned withdrawals meet both federal and Virginia requirements, especially if you’re using funds for newly expanded categories like therapies, tutoring, or career-training programs.

Frequently Asked Questions

These questions often come up in our planning conversations with families reviewing their 529 strategy.

1. What is the new K–12 withdrawal limit?
   The annual limit increases from $10,000 to $20,000 per student starting in the 2026 tax year.
   
2. What new expenses qualify for 529 withdrawals?
   Standardized test fees, tutoring, credentialing programs, vocational training, structured homeschool curriculum, and educational therapies including ADHD-related support.
   
3. Does this include support for learning differences?
   Yes. Academic therapies and certain support services for diagnosed learning differences are now eligible federal expenses.
   
4. Can 529 funds be used for homeschooling?
   Yes, structured homeschool curriculum and instructional materials now qualify under the expanded rules.
   
5. Can 529 funds pay for trade or vocational programs?
   Yes. Many career-focused programs, including cosmetology, HVAC, and EMT certification, now meet eligibility requirements.
   
6. How do 529-to-Roth IRA rollovers work?
   Up to $35,000 may be rolled into a Roth IRA for the same beneficiary, subject to age, income, timing, and contribution limits.
   
7. What happens if my child doesn’t go to college?
   Funds may be directed toward vocational training or slowly transferred into a Roth IRA, reducing the risk of unused balances.
   
8. Do states automatically follow federal 529 rule changes?
   Not always. States may choose not to adopt certain federal updates, particularly around K–12 expenses, therapies, and homeschooling.
   
9. Does Virginia follow the new rules?
   Virginia conformity may lag behind federal changes. Families should verify state recognition of eligible expenses before withdrawing.
   
10. Are 529 withdrawals taxable?
    Qualified withdrawals remain tax-free. Nonqualified withdrawals may incur federal income tax and a 10 percent penalty, plus possible state-level taxes.
    
11. How can families avoid penalties?
    Match withdrawals to the tax year of expenses, stay within annual limits, document all eligible uses, and confirm state conformity.

What These Changes Mean for Your Tax and Financial Planning

The expanded 529 rules create more opportunities to support a child’s education, career development, and long-term financial stability. They also introduce new layers of planning: understanding state conformity, documenting newly eligible expenses, and determining whether a Roth rollover fits into your broader strategy.

For many families, these updates present both opportunities and decisions to weigh—especially when balancing K–12 expenses, college planning, and early retirement funding for a beneficiary. Reviewing your current savings trajectory, expected expenses, and rollover eligibility can help you make the most of the new rules.

A strategic review of your 529 plan with our team can help you decide whether to adjust contributions, shift how you withdraw funds, or incorporate new planning opportunities into your long-term financial goals.

Talk to Wendroff CPA About Your 529 Strategy

As education and tax rules evolve, thoughtful planning with a trusted advisor can help you take full advantage of the new 529 benefits while avoiding costly mistakes. Our team can guide you through eligibility rules, state conformity, Roth IRA rollover strategies, and smart withdrawal timing so your plan supports both immediate needs and long-term goals.

If you’d like guidance tailored to your family’s situation, use the Free Consult link below to schedule a meeting with our team. We’re here to help you apply these new rules with confidence and make the most of your 529 strategy.