How the OBBBA Changes Education & Kids’ Savings Accounts

Savings Options for Families

The OBBBA expands 529 uses and creates MAGA accounts, giving families new ways to save for children’s education and future goals.

For parents and families saving for education, the One Big Beautiful Bill Act (OBBBA) brings a number of important updates. Here’s what’s new, what stays the same, and how to make the changes work for your family.

What’s New for 529 Plans & Kid Savings

Expanded Qualified 529 Expenses

The bill broadens what counts as a “qualified education expense” under 529 plans. As of July 5, 2025, these new uses are allowed:

• K-12 expenses beyond just tuition: things like books, curriculum materials, tutoring, online learning, and testing fees

• Educational therapies and support services (for students with disabilities)

• Credentialing, licensure, trade and workforce training programs beyond traditional college degrees

Starting in 2026, the K-12 withdrawal limit from 529s doubles - you’ll be able to use up to $20,000 per year for K-12 qualified expenses.

However, state tax treatment doesn’t always match federal rules. Some states, including California, New Jersey, and Michigan, still treat K-12 withdrawals from 529s as nonqualified distributions, meaning the earnings portion may be subject to state income tax and/or penalties. If you live in one of these states, check your plan’s specific rules before using 529 funds for private school or tutoring to avoid an unexpected tax bill.

More Flexibility and Rollover Options

• You can roll unused 529 funds into ABLE accounts (for beneficiaries or family members), with no expiration on that option

• The rules for 529 → Roth IRA rollovers have been clarified. Some unused 529 funds may be moved into Roth IRAs under certain conditions (e.g. account age of 15 years, lifetime limit of $35,000 rollover per beneficiary)

The “Trump Accounts” / MAGA Accounts

The OBBBA also introduces MAGA accounts (Money Accounts for Growth and Advancement), a new way for parents to save for their children’s future. Here’s what you should know:

• Who can contribute: Parents and guardians can contribute up to $5,000 per year for children under age 8. The federal government provides a one-time $1,000 seed contribution for eligible children born between 2025 and 2028.

• Withdrawal rules:

  • Before age 18: Withdrawals are not allowed

  • Ages 18–59½: Withdrawals are permitted but subject to ordinary income tax and, if used for non-qualified purposes, a 10% early withdrawal penalty

    After age 59½: Withdrawals are taxed as ordinary income, with no penalty

• Qualified uses: Higher education, first-time home purchase, certain business or farm expenses, and other approved purposes

MAGA accounts are designed to complement 529 plans by offering long-term growth for young children while providing flexibility for education, homeownership, or business ventures later in life.

What Remains Unchanged / What to Watch

• Contributions to 529s are still made with after-tax dollars (no federal deduction)

• To keep withdrawals tax-free, they still must be used for qualified expenses

• State tax treatment may or may not follow the new federal rules. Always check your state’s position

• The lifetime limits, rollover rules, and timing requirements still apply (for example, 529 accounts often must be open a certain length of time to roll into a Roth)

Strategies to Make the New Rules Work for Your Family

Here are actionable ideas to take advantage of these changes:

• Revisit your 529 plan assumptions
  With more eligible uses, you can be more aggressive early (higher equity) and pivot as expenses draw closer to avoid leaving money on the table.

• Bundle K-12 expenses
  If you expect large K-12 costs (tuition, tutoring, therapy), time your withdrawals to take full advantage of the expanded $20,000 limit starting 2026.

• Hold a MAGA account in parallel
  Especially for young children, the MAGA account might serve as a backup or complementary vehicle to 529s for early education, business seed funds, or even future housing.

• Plan for leftover funds
  If your child doesn’t use all the 529 money, the rollover to Roth IRA option is more useful now (if you meet the conditions). Also consider using the funds for credentialing or trade school.

• Watch state conformity
  Some states might not accept the expanded definitions (e.g. K-12 or tutoring) as qualified for state tax benefits. Make sure your plan doesn’t incur state penalties or loss of deductions.