The 529 Education Revolution Is Here

 

 

“A quiet revolution is under way in education policy. On the heels of the rapid spread of education savings accounts at the state level, Congress has made federal policy far more favorable for all types of education: foundational, postsecondary, workforce development and lifelong learning.

 

By expanding 529 accounts significantly, the One Big Beautiful Bill Act created a new template for education supporting students and parental choice. This new law also tees up battles in states where the status quo isn't working for the bottom half of the economic ladder.

 

Like Roth IRAs, 529s let account holders invest after-tax money in stock and bond funds, with income and qualified withdrawals free of federal taxes. For the first two decades after Congress created 529s, the accounts could be used only for higher education. That changed in 2017, when Congress expanded 529s to include K-12 tuition in the Tax Cuts and Jobs Act. Since then, 529s have surged in popularity, with more than $500 billion now invested in more than 17 million accounts.

 

The latest amendments to 529 plans are transformative, expanding them into tax-free savings accounts for a range of K-12 expenses, job-training, workforce-development and even disability-related costs. Under the One Big Beautiful Bill, these accounts can be used to cover tutoring, vocational training in skilled trades such as plumbing and welding, professional licensing, credential programs and continuing education.

 

For years, investing in costly graduate degrees with questionable career returns and enforcing standardized education systems that fail to ensure basic reading and math proficiency for millions have proved inadequate. But 529 plans provide a flexible alternative for education spending, better suited to children and working adults seeking in-demand skills.

 

Access to these plans is available nationwide, but participation is limited by financial barriers and lack of awareness among parents. Some states tax federally qualified withdrawals for certain uses. California residents who withdraw 529 funds to pay for primary or secondary education remain subject to state income taxes plus an additional 2.5% tax penalty. Other large states such as Colorado, Illinois, Michigan and Minnesota continue to tax 529 distributions for K-12 tuition.

 

The stakes are now higher for states that don't conform to federal law. After the 2017 changes, leaders in states with powerful teachers unions could score political points by taxing 529 funds used to pay for private-school tuition. But nonconformity with federal law now penalizes the parents of a special-needs child who attends a public school and wants to use 529 funds to pay for a tutor or the parent of a high-school senior who wants to use a 529 to become an HVAC tech. By transforming 529s, the One Big Beautiful Bill puts pressure on the political leadership of nonconforming states to remove barriers to upward mobility.

 

Every state should conform with these new federal rules so people can take full advantage of the new benefits. Policymakers and the private sector should also enact policies to fund 529 accounts on a means-tested basis, since many lower- and middle-income families can't afford to save for their child's education. A pilot project for this in Oklahoma benefited participating families. Similarly, Maine has the Alfond Grant, which provides $500 grants to children for 529 savings. Some companies are providing employer matches or contributions into 529s.

 

Congress should further expand access by allowing the newly created "Trump accounts" for children born over the next three years to be converted into 529s or redirect funding currently spent by the Education Department into 529s for disadvantaged children.

 

By expanding student and parental choice, the One Big Beautiful Bill Act has introduced a positive framework for schooling policy. The education revolution is here, but it will succeed only if states allow it to.

 

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Mr. Toth is a resident fellow at the Foundation for Research on Equal Opportunity and research fellow at the Civitas Institute at the University of Texas at Austin. Mr. Lips is a senior fellow at the Foundation for Research on Equal Opportunity.” [1]

 

1. The 529 Education Revolution Is Here. Toth, Mike; Lips, Dan.  Wall Street Journal, Eastern edition; New York, N.Y.. 28 Aug 2025: A13.