Education costs are climbing faster than a rocket launch, and for many families, saving for college—or even private K-12 tuition—feels overwhelming. That’s where Section 529 plans come in. These tax-advantaged savings vehicles, also called “qualified tuition plans,” offer families a flexible, powerful way to invest in a child’s future. And thanks to recent legislative updates, 529 plans now pack more benefits than ever before.
At JS Morlu, we help families, business owners, and high-net-worth individuals navigate the complexities of tax planning. Let’s break down how 529 plans work, the unique rules around contributions, and the exciting new options available under the One Big Beautiful Bill Act (OBBBA).
Who Can Contribute to a 529 Plan?
Here’s the beauty of 529 plans: anyone can contribute. Parents, grandparents, aunts, uncles, even friends—there are no income limits or restrictions. This makes 529 contributions a thoughtful gift for birthdays, holidays, or milestones.
Example:
Imagine Bob, the lamp mogul, wants to support his niece’s education. He can add funds to her 529 account, no matter his income level, as long as total contributions don’t exceed the state’s maximum cap.
How Much Can You Contribute Without Triggering Gift Taxes?
Contributions to a 529 plan are treated as gifts under federal tax law. For 2025:
- $19,000 per beneficiary is the annual gift tax exclusion.
- Married couples can give $38,000 together.
So, if Bob and his spouse want to supercharge their niece’s plan, they can contribute $38,000 this year without filing a gift tax return.
The “Superfunding” Strategy: 5-Year Rule
Here’s where things get interesting. A unique feature of 529 plans allows you to front-load contributions:
- In 2025, you can contribute up to $95,000 in a single year (five times the annual exclusion).
- Couples can double that to $190,000.
This is called superfunding. It lets money grow tax-free for more years—an incredible advantage if the child is still young.
If the exclusion amount rises in future years, you may even make additional contributions within that five-year window.
State Contribution Limits
Each state sets a cap on 529 account balances, typically ranging from $235,000 to over $550,000 per beneficiary. You’re not limited to your home state’s plan, so shopping around may unlock better investment options or lower fees.
Tuition Payments vs. 529 Contributions: A Grandparent’s Dilemma
Many grandparents debate whether to invest in a 529 or simply pay tuition directly. The IRS has a special rule here: direct tuition payments to schools are not considered taxable gifts.
This means Grandma can pay her granddaughter’s $30,000 private school tuition outright without worrying about gift taxes—while still keeping her portfolio intact. This strategy reduces her taxable estate while supporting education in a tax-efficient way.
What Can 529 Funds Be Used For?
529 plans have expanded dramatically in scope. They now cover:
- College and University Costs: Tuition, fees, books, supplies, equipment.
- Technology: Computers, software, and internet access.
- Room & Board: For half-time students or more.
- Special Needs Services.
- K-12 Education: Starting January 2026, the OBBBA allows up to $20,000 annually per student, covering not just tuition but also tutoring, instructional materials, testing fees, and more. (From 2018–2025, the cap was $10,000/year.)
- Apprenticeships & Credentials: Funds can support registered apprenticeship programs and postsecondary credential expenses.
This flexibility makes 529s a versatile tool for a wide range of education paths.
What Happens If You Don’t Use All the Funds?
Not every child follows the traditional college path, and that’s okay. Recent legislation gives families peace of mind with rollover options:
- Rollover to an ABLE Account: Perfect if the beneficiary has or develops a disability. Funds can move tax-free to support disability-related expenses.
- Rollover to a Roth IRA: Thanks to SECURE Act 2.0, up to $35,000 in leftover funds can be rolled into the beneficiary’s Roth IRA. This is a lifetime limit but provides a valuable head start on retirement savings.
Tax Treatment of Withdrawals
- Qualified withdrawals: Tax-free.
- Non-qualified withdrawals: Earnings portion is subject to income tax + a 10% penalty.
- Exceptions: If the student receives a scholarship, the penalty is waived (though earnings are still taxed).
This ensures flexibility while discouraging misuse.
Why 529 Plans Belong in Your Wealth Strategy
For families—especially high-net-worth individuals focused on legacy planning—529 plans offer:
- Tax-free growth: Every dollar compounds faster when Uncle Sam isn’t taking a cut.
- Estate planning benefits: Contributions reduce taxable estates while funding education.
- Flexibility: Rollovers and expanded qualified expenses safeguard against unused funds.
Final Thoughts: Take the Next Step with JS Morlu
At JS Morlu, we specialize in tax planning and wealth strategies that align with your long-term goals. Whether you’re a parent planning for your child’s future, a grandparent looking to leave a legacy, or a business owner balancing family and financial priorities, 529 plans can play a pivotal role.
But the details—gift tax rules, state limits, and new legislation—can be tricky. That’s where expert guidance makes all the difference.
👉 Contact JS Morlu today for a consultation. We’ll help you build a personalized education savings strategy that maximizes tax benefits, protects your wealth, and supports your family’s future.