08/29/2025

New Federal Law Expands Use of 529 Plans to Include Qualified Expenses on Credentialing Programs

IRS Code Section 529 was recently amended to expand qualified postsecondary credential expenses

Congress recently passed the Freedom to Invest in Tomorrow’s Workforce Act as part of a broader overhaul of the tax code, incorporating the bill into the One Big Beautiful Bill Act. The bill was signed into law on July 4, 2025. As a result, Section 529 of the Internal Revenue Code has been amended to add a new subsection on “qualified postsecondary credential expenses.”

This new law expands the qualified uses of 529 Plans (also known as Qualified Tuition Programs) to include costs associated with postsecondary training and credentialing programs, such as occupational licenses and nongovernmental professional certifications. This important change transforms 529 Plans from college savings vehicles into more flexible career savings plans.

Below are answers to common questions about 529 Plans and the expansion to cover eligible postsecondary credentialing programs:

What is a 529 Plan?

A 529 Plan is a tax-advantaged savings plan that has traditionally been used to save for a named beneficiary’s enrollment at a college or university. Contributions to 529 Plan accounts are made on an after-tax basis, but 529 Plan distributions (withdrawals) are not subject to federal taxes on any increase in value if they are used to pay for qualifying expenses. Most states also provide for state tax advantages for 529 Plans.  Anyone can set up and contribute to a 529 Plan and name anyone – including themselves – as a beneficiary; the contributor can also substitute beneficiaries. The contributor can elect to purchase a pre-paid college plan or invest contributions and utilize the investment returns to pay qualified education expenses for the beneficiary in the future. Almost every state sponsors a 529 Plan, but you generally don’t need to be a resident of a particular state to invest in its 529 plan. (More information about 529 Plans as they existed before the postsecondary credential expansion is available in Section 7, “Qualified Tuition Programs” of IRS Publication 970: Tax Benefits for Education.)

How does the new law expand 529 Plans for Postsecondary Credentials?

The new law permits 529 plans to be used for qualified postsecondary credentialing expenses.  These expenses include:

• tuition, fees, books, supplies, equipment, and similar expenses required for the enrollment or attendance of a designated beneficiary in a recognized postsecondary credential program,
• fees for testing if such testing is required to obtain or maintain a recognized postsecondary credential, and
• fees for continuing education if such education is required to maintain a recognized postsecondary credential.

What is considered a Recognized Postsecondary Credential?

Under the new law, qualified postsecondary credentialing expensesinclude those incurred in connection with obtaining or maintaining a recognized postsecondary credential – such as examination fees, license fees, or continuing education fees that are required to maintain the certification or license.  Some credentials are automatically designated as recognized postsecondary credentials for which beneficiaries of a 529 Plan can incur qualified expenses. These include:

• Certifications issued by programs that are accredited by the Institute for Credentialing Excellence (I.C.E.), the National Commission on Certifying Agencies, or the American National Standards Institute.
• Employment credentials that are included in the Credentialing Opportunities On-Line (COOL) directories maintained by the Department of Defense or by any branch of the Armed Forces.
• Any occupational or professional license that is issued or recognized by a state or the federal government.
• Any certification that is required for an occupational or professional license.
• Certificates of completion of apprenticeships that are registered and certified under the National Apprenticeship Act.

The new law also calls for the Internal Revenue Service (IRS) to identify other postsecondary credentials that are industry recognized and can become eligible for funding through 529 Plans.

What is considered a Recognized Postsecondary Credential Program?

Under the new law, training and education expenses for enrollment in a program that prepares participants to take an examination that is developed or administered by an organization widely recognized as providing reputable credentials in the occupation also count as qualified postsecondary credentialing expenses that can be financed with 529 plan funds – even if they are not connected to an institution of higher education.  Other training or education programs qualify if they are:

• Included on state list of programs approved under section 122(d) of the Workforce Innovation and Opportunity Act (WIOA).
• Listed in the Department of Veterans Affairs’ WEAMS Public directory.

The new law also calls for the IRS, in consultation with the U.S. Department of Labor, to identify other reputable postsecondary credentialing programs for which 529 plans funds can be used.

Please select this link to read the complete FAQ from ASAE.