529 plans now cover more education expenses, and some unused money can move to the beneficiary’s Roth IRA.
- K-12: for 2026, the federal K-12 limit is $20,000 per beneficiary, up from $10,000.
- Credentials: eligible credential programs also gained coverage.
- Roth rollover: a separate $35,000 lifetime cap and strict eligibility rules.
These changes add flexibility; they do not turn a 529 into an unrestricted spending account.
What education expenses can it cover?
A 529 uses after-tax contributions. Its main federal benefit is that investment earnings can come out tax-free when the withdrawal pays qualified expenses.
| Use | What to check |
|---|---|
| College | Tuition, fees, books, some room + board |
| K-12 | $20,000 (2026) per beneficiary, tuition and more |
| Postsecondary credentials | Must meet the law’s tests |
| Registered apprenticeships | Fees, books, supplies, equipment |
The effective dates differ:
- Expanded K-12 categories and credential rules: took effect for distributions after July 4, 2025.
- Higher K-12 dollar limit: applies beginning in 2026. A 2025 withdrawal did not get the new $20,000 limit.
See Public Law 119-21, sections 70413 and 70414 and IRS Publication 970.
Federal eligibility is only half the check. A state may not follow every expansion and may recover a deduction you previously claimed. Check the rules where you file and the plan administrator’s requirements before taking the money out.
When can unused funds move to a Roth IRA?
An eligible 529-to-Roth transfer goes directly to a Roth IRA owned by the beneficiary, not the parent simply because the parent funded the account.
| Rule | What it means |
|---|---|
| Lifetime limit | $35,000 per beneficiary |
| Account age | 15 years |
| Recent contributions | Last 5 years excluded |
| Annual room | Reduced by other IRA contributions |
| Compensation | Beneficiary needs enough |
| State treatment | May differ from federal |
The usual Roth contribution income phaseout does not apply to this rollover. The other conditions still do. IRS Publication 590-A sets out the rollover limits.
Example: annual room can limit the transfer
Assume an eligible beneficiary under 50 earns at least $7,500 in 2026 and has already contributed $2,000 to an IRA. The $7,500 annual IRA limit leaves $5,500 for a qualifying 529 rollover.
The rollover still requires:
- Enough eligible older contributions and earnings in the account
- Lifetime rollover room for the beneficiary
Even with $35,000 left in the 529, the full balance cannot move that year. The rollover moves surplus funds gradually. It is not a quick way out of an overfunded account.
What does five-year gift averaging do?
Gift averaging lets a donor elect to spread an eligible 529 contribution over five years for gift-tax annual-exclusion purposes. It does not spread out the actual investment: the money goes into the account when contributed.
A large contribution is not automatically free of reporting just because it fits the headline amount:
- Reporting: the election requires Form 709 reporting.
- Other gifts: gifts during those five years can use up exclusion room.
- Death of the donor: a donor’s death during the period can bring part of the contribution back into the estate calculation.
Use the Form 709 instructions for the election.
What if the education plan changes?
Start with what the beneficiary may still need: graduate school, another eligible program, or other qualified education expenses. Then compare:
- A permitted beneficiary change
- An eligible Roth rollover
- A nonqualified withdrawal
Before putting more in:
- Estimate the remaining education bill after grants and other funds.
- Check whether the next contribution would leave your retirement savings or emergency cash short.
The 529 comparison calculator can illustrate growth assumptions; it cannot decide which withdrawal will qualify.
