We are one month into 2026, which means The One Big Beautiful Bill Act (“OBBBA”) is in full swing. We recently attended the annual Heckerling Institute on Estate Planning, which addresses the most important legal and tax aspects of estate planning of the day. This year’s focus, unsurprisingly, was on the OBBBA. What follows is a discussion about OBBBA provisions that were highlighted during the conference and may influence planning considerations when saving for your children or grandchildren.
As we shared previously in our August and October 2025 tax updates, the Tax Cut and Jobs Act of 2017 (“TCJA”) had been scheduled to sunset at the end of 2025. However, the OBBBA, signed into law on July 4, 2025, made some of the TCJA tax provisions permanent and modified others. Two key modifications that relate to saving for children or grandchildren are (1) the expansion of 529 plan spending opportunities and (2) the creation of Trump Accounts.
Expanded options for spending 529 plan funds – The OBBBA significantly expanded the expenses 529 plan funds may cover, now allowing families to save for a large swath of education and career-related expenses. Because of this expansion, individuals who may not have previously considered funding a 529 plan, particularly high net worth individuals or couples, may now be more inclined to do so.
- Higher Limits: 529 plan accounts were established as tax-exempt and were originally authorized to pay for “qualified higher education expense” of post-secondary education. The TCJA expanded the permissible uses of 529 plan funds to include up to $10,000 of annual distributions for tuition at private elementary and secondary schools. Now, under the OBBBA, that limit has been expanded to $20,000 per year. In considering these changes, keep in mind that it is generally advisable to delay spending 529 plan funds to maximize the tax-free growth, so tapping them for early education should be done only after careful consideration.
- Wider Application: In addition to tuition, these funds can now be used for enrollment and attendance expenses at elementary or secondary schools for students in public, private or religious schools and for a greater variety of post-secondary programs. Such eligible expenses include (1) tuition, (2) textbooks, (3) instructional materials and supplies, (4) online materials, (5) professional tutoring, (6) standardized tests (including AP tests and SAT/ACT testing), (7) dual enrollment fees, (8) fees required for continuing education, and (9) educational therapies (including occupational, behavioral, and speech therapies) for students with disabilities. It also allows use of funds for certain post-secondary credentialing programs and apprenticeships, allowing individuals to use funds for enrollment, books and materials, supplies and equipment (for example, electrician toolkits or cosmetology supplies), and testing or licensing exams, such as fees related to the Bar exam, becoming a CPA, or obtaining a nursing certification, and fees related to maintaining that license.
- Maximizing Unused Funds: A common concern of families is leaving money behind in a 529 plan, such as if a child receives a scholarship or does not attend college. Heretofore, the most common path for using these resources was to apply them to education expenses of other beneficiaries – e.g., siblings, parents, or future grandchildren. Now, not only can funds be used for a wider set of purposes as mentioned above, but, subject to a host of restrictions, up to $35,000 of unused 529 funds can be rolled over into a Roth IRA for the beneficiary to build retirement assets. Among the restrictions: i) the 529 plan must be at least 15 years old; ii) the rollover amount is limited each year to the annual IRA contribution limit (in 2026, this is $7,500 for those under age 50); iii) the beneficiary must have earned income equal to or greater than the amount rolled over; and iv) additional IRA contributions are prohibited during the year of any rollover achieving that maximum amount.
- ABLE Accounts: Families with ABLE accounts to support individuals with disabilities will now see a greater intersection between those accounts and 529 plans. The OBBBA made permanent the ability to rollover funds from a 529 plan to an ABLE account, subject to annual ABLE contribution limits. In addition, as of January 1, 2026, the age of disability onset required for eligibility has increased from age 26 to 46. With this, those who had a 529 plan and developed a disability later in life, such as veterans, those with MS or ALS, or disabilities from accidents, can rollover 529 funds to an ABLE account to manage long-term care costs.
Creation of Trump Accounts – The OBBBA created new tax-exempt retirement accounts, similar to an IRA, for children under age 18. Non-deductible annual contributions of up to $5,000 (which will be adjusted for inflation) can be made to these accounts. This provision became effective January 1, 2026, and contributions can be made beginning July 4, 2026. Unlike a traditional IRA, the child beneficiary does not need to have earned income for contributions to be made to their account.
Notably, the federal government will contribute $1,000 to a Trump Account created for an eligible child who is a U.S. citizen born between 2025 and 2028. This initial $1,000 does not count toward the $5,000 annual limit. Contrastingly, employers can contribute up to $2,500 annually to an employee’s child’s Trump Account, which would typically count toward the annual limit.
Trump Accounts have some nuances and limitations. For example, contributions must be invested in a limited range of eligible mutual funds or exchange funds. Distributions are generally prohibited before age 18. Once the child turns 18, the account remains a “Trump Account” but becomes subject to the general rules governing IRAs. While these funds may then be used for retirement or toward other qualified purchases, such as a first-time home purchase, withdrawals for other purposes made before the age 59 ½ may incur a 10% penalty. Each child may only have only one Trump Account.
In sum, the OBBBA made significant changes to how 529 plan funds can be spent, greatly enhancing the flexibility of the program. And the introduction of the Trump Account offers an opportunity to assist our youngest savers. Parents and grandparents now have expanded options to kickstart their family’s financial future.
Charlotte Alton and Elizabeth Hefferon
