Are 529 Plans More Attractive After the 2025 Tax Bill? What Parents and Grandparents Need to Know
Summary: Recent changes under the 2025 tax law have significantly improved the flexibility and benefits of 529 college savings plans. These updates, especially the increase in qualified withdrawal limits, make it more important than ever to evaluate how a 529 fits into your family's education and legacy planning. Whether you're a parent, grandparent, or ministry leader helping others navigate college costs, this is a window of opportunity you shouldn't ignore.
For years, 529 plans have offered families a tax-efficient way to save for education. But they weren’t always flexible, and the benefits could seem limited compared to other planning tools. That changed with the passage of the One Big Beautiful Bill in 2025, which brought meaningful enhancements to how 529s can be used and who can benefit.
What Changed in 2025?
1. Increased K–12 Withdrawal Limits
Families can now withdraw up to $20,000 annually per beneficiary for qualified K–12 tuition and related expenses. That’s double the previous $10,000 cap. If you’re paying for private school, this means you can get more tax-free value out of your savings.
2. More Flexibility for Qualified Expenses
The bill expands what counts as a qualified education expense for 529 withdrawals. In addition to tuition and fees, more categories of books, technology, and special needs services now qualify.
3. Streamlined Coordination With Other Aid
While some aspects of FAFSA were restructured, 529s owned by parents still offer the most favorable treatment for financial aid purposes. Funds in parent-owned 529s count as a parental asset (assessed at a lower rate) and withdrawals are not counted as student income.
Should a Parent or Grandparent Open the Account?
This is one of the most common questions we get. And while either can open a 529, the right answer depends on your family’s goals:
Parent-Owned: Offers the best FAFSA treatment and keeps financial control aligned with the household responsible for education.
Grandparent-Owned: Allows grandparents to directly bless their grandchildren’s future, but until recently, withdrawals could hurt financial aid. The 2025 FAFSA changes reduced this impact, but some families still prefer to have grandparents contribute to a parent-owned account.
The person who opens the account is the owner, and that owner controls how and when the money is used. Even though the account is for a child’s benefit, the beneficiary doesn’t control the funds.
Best Practices for Using a 529 Plan in 2025 and Beyond
Start early and automate contributions. Compounding over time is still one of the biggest advantages.
Coordinate with financial aid. Parent-owned accounts are ideal for FAFSA. Grandparent gifts are best routed through those accounts.
Understand your state’s tax benefits. Some states offer deductions or credits for contributions to their 529 plans. Even if you live in a state without income tax, consider the investment options and flexibility.
Use the expanded K–12 limit strategically. If you're already paying for private school, a 529 can help cover costs with tax-free growth.
Final Thought: 529 Plans Are Powerful With the Right Plan
Like most tools in financial planning, a 529 is only as good as the strategy behind it. The 2025 updates make this tool more attractive than ever, but only when used intentionally. Whether you're trying to bless your child, your grandchild, or stretch ministry income for lasting impact, it's worth revisiting how education fits into your broader goals.
I’m grateful for the chance to share financial education here on Pastoral Finance. My heart is to help pastors and their families make wise decisions with clarity and confidence, especially in seasons of change.
While these blog posts are here to equip as many as possible, I also work closely with a small number of pastoral families each year through a more personal, ongoing planning relationship. With more than two decades of experience in ministry and finance, I understand firsthand how things like taxes, retirement income, housing allowance, and giving strategies can be confusing, but they don’t have to be.
Comprehensive financial planning isn’t just about numbers. It’s about aligning your financial life with your calling, your values, and the future you feel led to build. If you’ve ever wondered what it might look like to have someone walk with you through those decisions, that’s exactly what Legacy Path Advisors was built for.
This post is for educational purposes only and is based on public information available as of July 2025
