Matthew J. Parker

529 Plans are savings and investment accounts that allow individuals to save for a beneficiary’s education and related expenses.

Over the years, the program has expanded to permit the funds to be used for more than college education. Under 2025 federal legislation, 529 Plans can pay for a broader scope of educational and career uses.

529 Plans were named for a section of the IRS Code and originally designed to help families cover the cost of college education. Each state manages its own 529 Plan. Pennsylvania’s plan is called the 529 College and Savings Program. Information can be found at www.pa529.com. There are different plans available, depending on your investment goals.

There are many tax benefits to 529 Plans. There is a deduction from your Pennsylvania income taxes for contributions to the plans.

In 2025, that figure is $19,000 per person or $38,000 for a married couple. You can contribute this amount to the plan for each account beneficiary. You can also superfund a 529 Plan by contributing five years of funds at once ($95,000 for a single person in 2025) and treat the contributions as if they were made over five years.

529 Plans grow free from federal and state income taxes. They are not subject to Pennsylvania inheritance taxes and are considered completed gifts if you are concerned about Federal Estate Taxes.

The funds contributed to 529 Plans must be used to pay for qualified educational expenses. These have traditionally included tuition, fees, textbooks, computers and related equipment. Qualified student loans can also be paid with 529 funds, but only up to a maximum of $10,000 per year for each beneficiary.

Since the introduction of the 529 Plans, the category of qualified educational expenses has been expanded by the federal government. The list now includes kindergarten through 12th grade expenses up to $10,000 per student ($20,000 starting in 2026). The new expenses for K-12 now include tuition (elementary, secondary, public, private or religious schools), books and curricular materials, online learning resources, standardized test fees (like SAT/ACT), tutoring and adaptive support services for diagnosed learning disabilities, including ADHD.

The new 2025 federal legislation also expands the definition of qualifying educational institutions. They now include trade schools, vocational programs and registered apprenticeships at eligible institutions. You can even use the funds to pay for expenses associated with professional credentials, like continuing education costs and fees to maintain licensure.

The plans do have rules about withdrawing the funds for purposes other than the educational costs. There is a 10 percent federal penalty for the withdrawals not used for the qualified educational expenses and any growth on the account is then subject to income tax. The tax penalty can be waived under certain circumstances. One of the common reasons the accounts are not used is that the intended beneficiary does not attend college. In these cases, the accounts can be used for other beneficiaries as defined in the law.

529 Plans can also be converted into other savings accounts, such as a Roth IRA. Up to $35,000 can be rolled into a Roth IRA provided the 529 Plan has been open for at least 15 years. Funds from a 529 Plan can be transferred into an ABLE Account for a beneficiary who is disabled. ABLE Accounts also offer tax free growth, while the withdrawals are used for qualifying disability expenses.

529 Plans continue to evolve and can be a valuable part of your financial and estate plan. Keep in mind that many of the new 2025 federal changes will need to be adopted by the state of Pennsylvania before they are effective. Reach out to your qualified advisor to learn more.

— — — —

Matthew J. Parker, Esq. is an attorney at the law firm of Marshall, Parker & Weber, LLC, with offices in Williamsport, Jersey Shore and Plains. For more information visit www.paelderlaw.com or call 1-800-401-4552.