Introduction
The One Big Beautiful Bill Act (OBBBA) has significantly altered the landscape of 529 plans that are utilized for education savings. While the changes provide families with greater flexibility in how they can apply tax-advantaged savings, they also introduce new supervisory and disclosure challenges for financial services firms. Firms should take note of these developments, as both regulatory risk and client communication responsibilities will evolve in response.
Expanded K–12 Education Benefits
Prior to these changes, the use of funds in 529 Plans for K–12 education was limited to tuition, and was capped at $10,000 annually per beneficiary. Beginning January 1, 2026, the annual withdrawal cap for K–12 expenses will increase to $20,000 annually per beneficiary, effectively doubling the amount parents may allocate to private or supplemental education costs.
Additionally, the OBBBA now broadens the definition of qualified expenses to include curriculum and instructional materials, books and online resources, tutoring, standardized testing fees, and certain therapies for students with disabilities.
For financial firms, the expansion underscores the importance of ensuring that representatives communicate not only the enhanced flexibility, but also the limitations. Importantly, not all states have conformed to the new federal definitions. As a result, families may face state-level tax liabilities or penalties in the event they utilize the federal eligibility standards and their respective state standards differ. This divergence between federal and state treatment should be front-and-center in client disclosures and supervisory reviews.
Coverage for Postsecondary Credentials and Training
Another major change is the inclusion of workforce training and professional credentialing programs. For the first time, funds in 529 Plans may be used to pay for tuition, books, testing, and supplies for recognized credentialing and apprenticeship programs, military training, and other career-oriented education.
This change reflects the reality that higher education is not the only pathway to professional development. From a compliance standpoint, it also means that suitability determinations must expand to consider whether clients intend to use their 529 Plans for non-traditional education purposes. Representatives should be careful to avoid generalized recommendations and instead document how advice corresponds to a client’s individual education and career planning objectives. Additionally, consideration should be given to the appropriate class of the underlying securities, given that the timeline of the investment can range from a very short term for K-12 expenses, to long term, in the case of saving for college.
New Flexibility in Rollovers
The legislation also builds on prior reforms that introduced rollover options. Under the SECURE Act 2.0 (effective in 2024), up to $35,000 of unused 529 plan funds may be rolled into the beneficiary’s Roth IRA, provided the account has been open at least 15 years and annual contribution limits are respected. In addition, the ability to roll over 529 assets into Achieving Better Life Experience (ABLE) accounts for individuals with disabilities, a provision previously set to expire, has now been made permanent.
Both options offer important planning tools but come with restrictions that must be carefully explained. Compliance teams should ensure that representatives confirm eligibility requirements before recommending rollovers, and that marketing or training materials describe both the benefits and limitations in a fair and balanced manner.
Contribution Limits and the “Superfunding” Strategy
The OBBBA also coincides with an increase in the annual gift tax exclusion to $19,000 per individual or $38,000 per couple per beneficiary in 2025. Donors may also “superfund” by contributing up to $95,000 ($190,000 for couples) in a single year, effectively applying five years’ worth of exclusion at once.
While attractive to high-net-worth clients, this strategy raises issues around liquidity, estate planning, and long-term suitability. Compliance reviews of promotional material should be attentive to Rule 2210’s requirement that communications remain balanced and do not overemphasize tax advantages without addressing potential risks.
Compliance Considerations and Next Steps
For financial services firms, the practical impact of these changes is twofold. First, there is a heightened need for training and supervision to ensure that representatives accurately present the new rules and disclose the risks of state non-conformity. Second, firms must review and update written procedures, supervisory frameworks, and marketing review standards to align with the expanded definitions of qualified expenses.
Communications with clients regarding 529 plans remain subject to FINRA Rule 2210, MSRB Rule G-21, SEC anti-fraud provisions, and suitability standards. This means that disclosures must be carefully crafted, and supervisory systems must be able to evidence compliance.
Conclusion
The expansion of 529 plan benefits offers families new opportunities for saving and spending on education, but these opportunities raise new compliance challenges. For firms, the challenge is clear: revise training materials, update supervisory protocols, and ensure that marketing and disclosures address the state and federal inconsistencies. By acting now and staying ahead of these developments, firms can position themselves to better serve clients, while minimizing regulatory exposure.