529 college savings plans are a favorite tool for families looking to fund education, but recent updates have made them even more compelling. With the passing of the One Big Beautiful Tax Act in 2025, there have been some exciting changes to what you can use 529 funds for, including expanded coverage for K-12 tuition, test fees, vocational programs, and support for learning differences.
I also discuss the various tax advantages of contributing to a 529 plan, like state tax deductions, tax-deferred growth, and even the ability to roll leftover funds into a Roth IRA for your child. He offers real-life examples, highlights differences across state plans, and gives practical tips on maximizing your savings and tax benefits as the year wraps up.
If you're looking to make the most out of your child or grandchild's future education while being smart about your finances, this episode is packed with must-know information.
Most people know 529 plans are great for covering college tuition, room and board, and required fees. The One Big Beautiful Tax Act of 2025 has expanded what 529 distributions can cover, opening up a wider range of education-related expenses, including much earlier in a student's academic journey.
Newly Eligible Expenses:
However, there are still some limitations: transportation, school-purchased health insurance, and extracurricular activity fees remain ineligible.
The state tax deduction is a unique benefit offered by many states for 529 contributions, but often families overlook this: over 30 states offer a tax break, but the rules vary. In Connecticut, for example, you can deduct up to $5,000 per person or $10,000 per couple from your state taxable income. You must usually contribute to your own state's plan (though states like Arizona, Kansas, and Pennsylvania allow deductions for out-of-state plans). Be mindful of year-end deadlines, contributions must be made by December 31st to claim the deduction for that year. Even if your state benefit is modest, it's essentially "free money" for doing something you're likely planning anyway.
529 plans now offer more flexibility, even if the intended student doesn't use all the funds for education.
All 529 plans are not created equal. Look for low-cost, direct-sold plans rather than advisor-sold plans that carry extra commissions. Every dollar saved on fees is another dollar that can grow tax-free in your account.
www.MorrisseyWealthManagement.com/contact
