529 Savings Plan
The Expanded 529 Savings Plans Now Cover Professional Certifications and Credentials!
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.)
The recent expansion of 529 College Savings Plans marks a major step forward for learners pursuing professional credentials and certifications. For the first time, funds from 529 plans can now be used to cover postsecondary training and credentialing expenses—including examination fees, license fees, and continuing education required to maintain certification.
This change, included in the federal Freedom to Invest in Tomorrow’s Workforce legislation, makes 529 plans a more flexible and accessible way to save for career-supporting education and credentials—not just college tuition.
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 expenses include 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. NALA’s Certified Paralegal (CP®) credential is accredited!
- 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.
When does the 529 Plan expansion to postsecondary credentialing programs take effect?
The expansion of 529 Plans to postsecondary credentialing programs should be available immediately under the new law. Any withdrawals from a 529 Plan after July 4, 2025, for qualified expenses at an eligible postsecondary credential program will be eligible for the same favorable tax treatment as traditional uses. Because the law became effective immediately, some 529 Plans may still need to work out the implementation details, however.
How can I use my 529 Plan funds for a credentialing program?
For 529 Plan holders, the first step in using your 529 Plan funds for a credentialing program is to contact your 529 Plan administrator. Ask if your 529 Plan has an option to make withdrawals to pay for qualified credentialing expenses.
Most states will already allow you to be reimbursed by your 529 Plan for qualified expenses made for credentialing programs. You may be asked to attest that the withdrawal is intended as a reimbursement for a qualified credentialing program expense. 529 Plan beneficiaries are encouraged to keep receipts and records related to any qualified credentialing expenses, in case of an IRS audit, and to consult with a tax professional to ensure withdrawals are made according to the requirements of 529 Plans.
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If you have any questions, please let us know at testing@nala.org. or 918-587-6828.