Are you a not-for-profit association or other tax-exempt organization built around progressing an industry, advancing member talents, or raising the bar of a profession through educational support and credentialing programs? The One Big Beautiful Bill Act (OBBBA) made significant strides in expanding the utility of college savings, also known as Section 529 plans.
Initially, “qualified higher education expenses” were limited to college tuition and related fees and later expanded to include some K-12 costs. The OBBBA made these plans more flexible than ever before, with the definition now including “qualified postsecondary credentialing expenses.”
Here are some of the new costs that may be eligible:
- Tuition, fees, books, supplies, equipment, or other expenses incurred in connection with enrollment or attendance at a recognized postsecondary credential program.
- Fees for testing and exam preparation if required to maintain a recognized postsecondary credential
- Fees for continuing professional education (CPE) if required to maintain a recognized postsecondary credential
The goal of the section 529 expansion is to incentivize adult, career-focused education, not casual or recreational learning, not tied to a trade or licensure. To qualify, a credentialing program must be one of the following:
- Authorized by the Workforce Innovation and Opportunity Act
- A military credential
- Approved by the federal or a state government
- Aligned with other approved postsecondary credential organizations
One word of caution: check your state’s rules related to qualified 529 distributions; not all states have aligned with the new federal standards.
Another beneficial section 529 provision update in the OBBBA allows excess funds in the account to be rolled over into a Roth IRA.
Here’s what you need to know:
- Lifetime Limit: Up to $35,000 in unused 529 funds can be rolled into a beneficiary’s Roth IRA.
- Eligibility: The 529 account must have been open for at least 15 years.
- Contribution Limits: Annual Roth IRA contribution limits still apply, so the rollover may need to occur over multiple years.
- No Income Limit: Unlike regular Roth IRA contributions, this rollover is not subject to the income cap.
- Tax and Penalty-Free: As long as conditions are met, there is no tax or early withdrawal penalty.
The expanded versatility of 529 plans, now supporting credentialing expenses and Roth IRA rollovers, empowers your not-for-profit’s members to invest in themselves for both career advancement and long-term financial security. Leverage these new options to enhance your organization’s educational mission and member benefits.
Help make your members aware of these changes that can enhance opportunities for professional development, workforce training, and credentialing, aligning with your organization’s goal of driving their success. They can pursue new certifications and career advancement while minimizing financial burden.
To explore how the new section 529 flexibility and Roth rollover rules apply to your organization and members, connect with a CBIZ tax professional.
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