Introduction
Created in 1996 as “qualified state tuition programs,” 529 plans have become a crucial savings tool for American families navigating the high cost of a college education. Families invest in a 529 savings account, earnings grow tax-deferred, and withdrawals are federally tax-free when used for qualified education expenses.
As of December 31, 2025, there were about 16.9 million active 529 savings accounts holding $576.7 billion in assets.1 In addition to the federal benefits, many states offer their own tax incentives for contributions.
This report examines the differences that policymakers should address restrictions on K–12 tuition, narrow treatment of non-tuition expenses, limits on contribution incentives, and unresolved or inconsistent guidance. We strongly encourage state lawmakers to ensure that their 529 program allows families to spend funds on any federally authorized expenses.
This eliminates confusion among families about what they can spend their 529 money on and, more importantly, prevents any well-meaning parent from being hit with a state tax penalty on an otherwise federally eligible expense.