Originally published May 17, 2024 | Updated for 2026 Tax Year
The landscape of education savings has transformed dramatically. With the signing of the One Big Beautiful Bill Act in July 2025, families now have unprecedented flexibility in how they save for—and use—education funds. Whether you're planning for your child's private school tuition, college expenses, vocational training, or supporting a loved one with disabilities, understanding the expanded rules for education savings accounts is more valuable than ever.
This comprehensive guide reflects the latest 2026 rules and shows you how to leverage these accounts strategically for your family's unique educational journey.
What Are Education Savings Accounts?
Education savings accounts are tax-advantaged investment vehicles designed to help families save for qualified education expenses. Unlike traditional savings accounts, these specialized accounts allow your contributions to grow tax-free, and withdrawals for qualified expenses come out tax-free as well.
The beauty of education savings accounts lies in their flexibility and growth potential. You control how funds are invested—from conservative options to growth-focused portfolios—allowing your savings to potentially outpace education cost inflation over time.
The Three Main Types of Education Savings Accounts
529 Plans: The Most Flexible Option
529 plans remain the most popular and versatile education savings tool. Named after Section 529 of the Internal Revenue Code, these state-sponsored plans have undergone significant expansions that make them valuable for far more than just college.
Key Benefits for 2026:
- No annual contribution limits from the IRS—contribute as much as needed (subject to state aggregate limits)
- Gift tax exclusion of $19,000 per individual ($38,000 for married couples) in 2026 without triggering gift tax consequences
- Superfunding option: Contribute up to $95,000 ($190,000 for couples) at once using 5-year gift tax averaging
- K-12 withdrawal limit doubled to $20,000 per student annually (up from $10,000)
- Tax-free growth and withdrawals for qualified expenses
- State tax deductions in nearly 40 states (check your state's specific benefits)
- No income restrictions on who can open or contribute to a 529 plan
Expanded Qualified Expenses (2026):
The One Big Beautiful Bill Act dramatically expanded what counts as a qualified education expense:
- College tuition, fees, room and board
- K-12 private school tuition (now up to $20,000 annually)
- Books, supplies, and required technology
- Standardized test fees (SAT, ACT, AP exams)
- Tutoring services and educational therapies
- Vocational and trade school programs
- Professional credentialing and licensing programs
- Structured homeschool curriculum and materials
- Educational support for learning differences (ADHD, dyslexia, etc.)
- Up to $10,000 for qualified student loan repayment (lifetime limit)
ABLE Accounts: Supporting Individuals with Disabilities
ABLE accounts (Achieving a Better Life Experience) provide a lifeline for individuals with disabilities, allowing them to save without jeopardizing eligibility for Medicaid, SSI, and other means-tested benefits. January 2026 brings transformative changes that expand access to millions more Americans.
Major 2026 Updates:
- Eligibility age raised from 26 to 46 — approximately 6.1 million more Americans now qualify
- Annual contribution limit increased to $20,000 (up from $19,000 in 2025)
- ABLE-to-Work provision now permanent: Working beneficiaries can contribute additional earnings up to $15,650 (2026 limit for continental U.S.) if not participating in employer retirement plans
- Tax-free 529-to-ABLE rollovers made permanent
- Saver's Credit eligibility now permanent, increasing to up to $1,050 in 2027
- Funds up to $100,000 don't count toward SSI resource limits; Medicaid unaffected regardless of balance
Who Should Consider an ABLE Account:
- Adults who developed disabilities before age 46 (expanded from 26 in 2026)
- Individuals receiving SSI, SSDI, or Medicaid
- Families wanting to provide financial support without affecting benefit eligibility
- Working individuals with disabilities who want to save beyond government benefit limits
Coverdell Education Savings Accounts (ESA): The Traditional Option
While 529 plans have largely eclipsed Coverdell ESAs in popularity, these accounts still offer unique advantages for some families—particularly those wanting more investment control.
Coverdell ESA Features:
- $2,000 annual contribution limit per beneficiary
- Wider investment flexibility than most 529 plans
- Can be used for K-12 and college expenses
- Income phase-outs: $95,000-$110,000 (single), $190,000-$220,000 (married filing jointly)
- Funds must be used by age 30 (with exceptions for special needs beneficiaries)
Most families find 529 plans more advantageous due to higher contribution limits and greater flexibility. However, high-income families exceeding Coverdell income limits can still use 529 plans without restriction.
How to Open an Education Savings Account
Opening a 529 Plan:
- Research state-specific plans for tax benefits (nearly 40 states offer deductions or credits)
- Compare fees, investment options, and performance across different state plans
- You're not limited to your home state's plan—shop around for the best option
- Complete the online application (typically 15-20 minutes)
- Set up automatic contributions to build savings consistently
Opening an ABLE Account:
- Verify eligibility (disability onset before age 46 as of 2026)
- Obtain SSA disability determination or physician certification
- Choose from 46 state programs (most accept out-of-state residents)
- Complete application and fund the account
Strategic Planning Considerations
Maximizing State Tax Benefits
Most states offering 529 tax deductions cap the annual benefit. Common limits include:
- $4,000 per beneficiary (Virginia, Montana)
- $10,000 per taxpayer (New York, Connecticut)
- Unlimited deduction (Indiana, New Mexico, Oklahoma, Utah)
Some states allow carryforward of excess contributions to future years. Consult your state's specific rules or work with a financial advisor to optimize your contribution strategy.
The 529-to-Roth IRA Rollover Strategy
One of the most valuable provisions from SECURE 2.0 allows families to roll over unused 529 funds into a Roth IRA for the beneficiary—offering a path to convert education savings into retirement savings without penalties.
Requirements:
- 529 account must be open for at least 15 years
- Contributions made within the last 5 years (and their earnings) are ineligible
- Rollovers subject to annual Roth IRA contribution limits ($7,500 in 2026)
- Lifetime rollover limit of $35,000 per beneficiary
- Beneficiary must have earned income equal to or greater than the rollover amount
This feature removes much of the "overfunding risk" previously associated with 529 plans, making them even more attractive for families uncertain about their child's educational path.
Important: State Tax Conformity
While federal law has expanded 529 qualified expenses significantly, not all states have conformed to the new rules. Some states may still treat the following as non-qualified for state tax purposes:
- Expanded K-12 expenses beyond tuition
- Tutoring and educational therapy
- Homeschool curriculum
California and New York, for example, have stricter state-level definitions. Before making non-college withdrawals, verify your state's conformity status to avoid unexpected state tax consequences. Many states are working to align with federal rules throughout 2026.
Common Mistakes to Avoid
- Waiting too long to start: The power of compound growth means starting early—even with small amounts—can make a significant difference
- Not shopping around for plans: Your home state may not offer the best option. Compare fees, investment options, and state tax benefits
- Ignoring state-specific benefits: Nearly 40 states offer tax deductions or credits—failing to claim them leaves money on the table
- Assuming 529 plans are only for college: With 2026 expansions, 529s now cover K-12, vocational training, apprenticeships, and more
- Not coordinating with other tax benefits: The same expense cannot qualify for multiple tax benefits (e.g., 529 withdrawal AND American Opportunity Tax Credit)
- Missing ABLE account opportunities: The 2026 age expansion makes millions more people eligible—don't overlook this powerful tool
Tips for Maximizing Your Education Savings
Start early and contribute consistently: Even $100/month can grow substantially over 10-18 years
Take advantage of gift contributions: Grandparents, aunts, uncles, and friends can all contribute, each with their own $19,000 annual gift tax exclusion
Consider superfunding for large contributions: The 5-year election allows up to $95,000 ($190,000 for couples) upfront, maximizing growth potential
Review and rebalance investments periodically: Most plans offer age-based portfolios that automatically adjust risk as college approaches
Keep detailed records: Document qualified expenses carefully to support tax-free withdrawals
Work with a financial advisor: Professional guidance helps integrate education savings with retirement planning, tax strategy, and estate planning
Frequently Asked Questions
Q: Can I use 529 funds for trade school or vocational programs?
A: Yes! Starting in 2026, qualified expenses explicitly include vocational training, credentialing programs (like cosmetology, HVAC, EMT), and apprenticeships at eligible institutions.
Q: What happens to unused 529 funds?
A: You have several options: (1) Change the beneficiary to another family member tax-free, (2) Use for graduate school or continuing education, (3) Roll up to $35,000 into a Roth IRA for the beneficiary (if requirements are met), or (4) Withdraw for non-qualified expenses (earnings will be taxable with a 10% penalty).
Q: Can grandparents open 529 accounts?
A: Absolutely. Grandparents and other family members can open 529 accounts for grandchildren. The recent FAFSA simplification (effective 2024-2025) means grandparent-owned 529s no longer negatively impact federal financial aid eligibility.
Q: Are ABLE accounts only for children?
A: No! Beginning January 2026, anyone whose disability onset occurred before age 46 is eligible. This expansion opens ABLE accounts to approximately 6 million more Americans, including adults with later-onset conditions.
Q: Do I have to use my state's 529 plan?
A: No. You can choose any state's plan. However, your home state may offer tax incentives for using its plan. Compare the value of your state's tax benefit against other plans' lower fees or better investment options.
Q: Can I use both a 529 plan and ABLE account for the same person?
A: Yes. For individuals with disabilities, you can maintain both accounts. You can even roll funds from a 529 into an ABLE account (subject to annual contribution limits) to provide more flexibility for qualified disability expenses.
Conclusion: The Future of Education Savings is Here
The 2026 education savings landscape offers unprecedented opportunities for families. With expanded 529 qualified expenses, higher K-12 withdrawal limits, ABLE account eligibility extensions, and Roth IRA rollover options, there's never been a better time to create a comprehensive education funding strategy.
Whether you're saving for a toddler's future college education, supporting a teenager's private school expenses, planning for vocational training, or ensuring financial security for a loved one with disabilities, education savings accounts provide powerful, tax-advantaged tools to achieve your goals.
The key is to start early, understand your options, and integrate education savings into your broader financial plan. At MJT & Associates, we help families navigate these complex decisions, ensuring your education savings strategy aligns with your retirement planning, tax optimization, and legacy goals.
