What 529 plan savers should watch in the 2025 budget reconciliation bill

While the Republican-backed budget reconciliation bill still has a long way to go through the hallowed halls of Congress, it could eventually bring positive changes for education-focused savers, including financial advisors who guide clients on 529 plan strategies.

The proposed legislation, also known as the “One, Big, Beautiful Bill” includes several education-related tax provisions that, if passed as written, would broaden qualified expenses for 529 plans, lock in enhanced ABLE account rules, and create a new tax-advantaged vehicle for minors.

Currently, 529 funds can be used for up to $10,000 per year in K–12 tuition. The bill – which narrowly passed the House last week in a near-even split vote – would expand those eligible expenses to give families greater flexibility across a child’s educational journey.

As noted in one explainer published by Fidelity Investments, the bill "proposes to expand uses of 529 funds to include things such as testing fees, tutoring outside the home, and educational therapies for students with disabilities.”

The legislation would also allow federal tax-free withdrawals for a broader array of workforce credentials. These include programs that appear on state and federal Workforce Innovation and Opportunity Act lists, are recognized by the Department of Veterans Affairs, or prepare individuals for licensing exams. Continuing education fees to maintain a certification would also qualify.

Another key provision would make permanent several ABLE account enhancements first enacted in 2017. These include an expanded annual contribution limit for workers with disabilities, eligibility for the Saver’s Credit, and the ability to roll over unused 529 plan assets into ABLE accounts without taxes or penalties.

Apart from 529 plans, the bill also proposes an additional benefit from so-called "Trump accounts" – earlier drafts of the House legislation call them "MAGA accounts" – which are fundable up to $5,000 a year.

Contributions to these accounts could come from parents, relatives, or any taxable entity, and gains would be taxed at the long-term capital gains rate if used for approved purposes. These include higher education, first-home purchases, or small-business startup costs. While some proponents of the bill would count that as a significant win, others aren't so sure.

“Assuming a family put the maximum $5,000 per year into the account, that would add up to more than $130,000 at age 18,” according to one analysis by MSNBC, noting that the largest benefit would accrue to families with enough disposable income to fully fund the account – in other words, wealthy households.

The bill also proposes a one-time federal contribution of $1,000 to the accounts of children born between January 1, 2025, and January 1, 2028. Unused funds could be withdrawn for any reason after age 30, though earlier withdrawals for nonqualified uses would be taxed at ordinary income rates.

While those one-time contributions to newborns are set to expire at the end of President Donald Trump's current term, MSNBC's analysis argues that could open the door to a more impactful benefit for parents, as the next commander-in-chief would then have license to "extend the Trump Accounts."

"If [the next president is] smart, they'll even leave the Trump name on them, to make it that much more painful for Republicans to vote against the extension," the commentary argued. "The fact that they began under a Republican president will also make it easier to respond to wild claims of 'socialism.'"