How to pay for test prep, licensing, and more with a 529 Plan

Figuring out how to prepare for higher education expenses is one of the most important financial decisions families in the U.S. face. In addition to tuition, students must consider a wide range of costs, including housing, textbooks, technology, and supplies. Test preparation, admissions counseling, and exam fees can also add up quickly. For those who have completed college or are pursuing alternative career pathways, they’re not off scot-free either: other financial needs may arise, such as training programs or certification exams.

Whether you are planning for your own future or your child’s education and training costs, finding a way to ease the burden of all associated expenses can be a challenge. This is where 529 plans may offer significant advantages: these accounts allow your savings to grow tax-free and be used for a broad range of educational costs. With recent updates, the list of qualified expenses has expanded, increasing flexibility and versatility for K-12 students, college or vocational school enrollees, and professionals seeking further education.

What is a 529 plan?

A 529 plan is a tax-advantaged savings account designed to help families prepare for future educational expenses. Operated by states, brokerages, or educational institutions, a 529 makes it easier to save for college, pay for post-secondary or trade school training, and even cover tuition costs at elementary or secondary schools. Individuals over 18 can open an account for themselves or designate a beneficiary, such as a child or grandchild, making it a flexible tool for education planning.

One of the primary benefits is that earnings in these accounts are not subject to federal tax and are generally exempt from state tax when used for 529-qualified education expenses. These include tuition, fees, books, room and board, technology, and other necessary education-related costs. There are no income restrictions, and you can open multiple 529 plans if you wish, providing additional flexibility for families with several beneficiaries.

There are two main types of 529 plans:

• A prepaid tuition plan, which allows you to lock in current tuition rates at eligible in-state public colleges and universities, covering tuition only.
• A more flexible savings plan that can be used for a wide range of costs, including tuition, fees, room and board, K-12 tuition, apprenticeship program costs, postsecondary credentialing programs, and even student loan repayments (up to $10,000).

Prepaid tuition plans offer the advantage of protecting against tuition inflation with virtually no market risk, but returns are fixed and limited to tuition. In contrast, 529 savings plans function like investment or brokerage accounts and fluctuate with market conditions, offering the potential for higher returns.

Both types provide valuable tax benefits and have a similar impact on financial aid: 529 plans are considered assets rather than income on the Free Application for Federal Student Aid (FAFSA), so their effect is typically minimal. Only qualified educational institutions can offer prepaid tuition plans, while states may offer both prepaid tuition plans and other options. You are not limited to your home state’s plan and can select the program that best meets your needs.

Despite these advantages, only about 10% of families currently use 529 savings plans for education funding, according to a Vanguard survey of over 1,000 parents with children under 18 living at home. Generally, returns from 529 plans can outperform those of high-yield savings accounts, with many options delivering average annual returns of 7% or more, making them a powerful option for families seeking to maximize their education savings.

It’s important to note that while account growth is not taxed, contributions to 529 plans are not tax-deductible at the federal level and are subject to annual limits; contributions cannot exceed the projected amount needed for 529 qualified education expenses. Additionally, gift tax consequences may arise if contributions plus other gifts to a single beneficiary exceed $19,000 in a year. Still, the potential tax savings on future expenses could be in the thousands of dollars, depending on how the plan is used.

How do I enroll in a 529 plan?

To open a 529 account, decide whether to set up a 529 plan directly through your state government’s website or explore alternative options managed by investment firms, such as Fidelity College Savings Plans and Vanguard 529 Plans.

Things to keep in mind before you set up a 529 plan:

• Consider the flexibility of a general savings plan versus locking funds for college tuition at a fixed rate, depending on whether you want more choices or a dedicated approach
• Identify the length of time you can invest in a 529 account before you’ll need to access funds for eligible educational expenses
• Assess your family’s current financial situation, possible contribution limits, projected savings growth, and your overall comfort with accepting investment risk and potential loss
• Compare administrative fees, ongoing plan maintenance costs, and investment expense ratios across different plans
• Be aware that you will have limited control over portfolio choice and decisions
• Take note of any penalties associated with non-qualified withdrawals, as earnings are treated as ordinary income and may face an additional 10% penalty
• Explore state-level tax benefits and deductions that may be available when funding your plan
• Keep track of other financial benefits through the Lifetime Learning Credit or other programs, as you cannot “double-dip” for the same expenses

Typically, 529 plans invest in mutual funds that offer diversified portfolios of stocks, bonds, and short-term investments. As children get closer to college age, these investments automatically shift toward a more conservative allocation, helping manage risk as withdrawal approaches.

Qualified withdrawals from a 529 account are always tax-free at the federal level, and in some states, contributors can also receive a state tax deduction or credit on their contributions. Establishing a 529 plan well in advance of enrollment maximizes your investment potential over the years. Any remaining amounts (up to $35,000) can be rolled over into a Roth IRA, where eligible withdrawals remain tax-free.

529 qualified expenses: Recent changes

The 529 plan provisions were significantly expanded under the 2025 spending bill, known as the “One Big Beautiful Bill Act,” which introduced major updates across the education sector. With these updates, the list of education-qualified expenses has expanded, making 529 plans more flexible for families and students pursuing a variety of postsecondary options.

Here’s an overview of what now counts as 529 qualified expenses:

• Professional certifications in fields like accounting and finance
• Tuition, books, and fees for professional licensing programs, including costs for exam preparation and review materials required for careers in law, medicine, and other regulated professions
• Credentialing, vocational, and apprenticeship programs, including trade schools for trades such as welding and HVAC
• Certifications that support military service members' entry into civilian professions
• Continuing education courses that are necessary to maintain professional licensing or certification
• Tutoring, standardized test prep, homeschool curriculum resources, and educational therapy (such as occupational, speech, or physical therapy) for K-12 students
• Fees for AP exams, dual enrollment, and other college-level courses taken during high school

Paying for test prep can already be an ordeal for many families worried about college costs, and investing in upskilling, certifications, and continuing education for working adults can be expensive as well. Test preparation for college or graduate exams can cost anywhere from $50 for self-study books to a few hundred dollars for classes to potentially thousands for private tutoring. Professional certification and recertification costs can also reach quadruple-digit figures, depending on the industry and the preparation paths taken. For budget-conscious students and professionals, tax relief on these often unavoidable expenses can be a huge help.

These changes have the potential to benefit families with college-bound students, professionals using credentialing to advance in their careers, and job-switchers seeking accessible entry into a new career path. For high school students in particular, access to high-quality test preparation and upper-level coursework could yield more competitive application profiles, higher financial aid, and advanced placement, thereby lowering educational costs down the road. Still, families should carefully consider whether they want to use earnings for shorter-term costs, such as test prep, or for larger, longer-term payments, such as college tuition. Families who begin investing in their accounts early may have enough saved to address a range of financial needs, while others may want to focus primarily on big-ticket items like tuition.

It’s important to note that while 529 plans now cover a wide range of programs and initiatives, including vocational and credentialing programs, there are some limits. Withdrawals for credentialing and trade school expenses are allowed up to the full cost of attendance. For K-12 educational support services, the maximum annual withdrawal is $20,000 per student, doubling the previous $10,000 cap established in 2017.

Additional eligibility guidelines to consider:

• 529 funds must be used specifically for qualified educational support.
• Tutoring services must be provided by licensed or certified professionals who are not family members.
• Although these expanded 529 qualified expenses are recognized at the federal level, individual state policies may differ. Always consult a tax advisor before making financial decisions related to your 529 plan.
• Recreational activities, hobby classes, general career development programs, and travel costs are not eligible for reimbursement.

These recent changes greatly enhance the value of 529 plans for families planning for higher education costs and for individuals entering professions that require specific credentials or ongoing education. By allowing 529s to be used for trade school and a broader range of post-secondary pathways, more students and professionals can benefit from tax-advantaged savings.

How to use your 529 plan to pay for test prep and licensing

The general process for using a 529 plan begins with paying for qualified expenses out of pocket, then requesting reimbursement through your account.

For best results, use this step-by-step guide:

1. Verify with your state or 529 plan provider that your intended expense qualifies for reimbursement under current rules.
2. Pay for test preparation, courses, or exams directly with a personal credit or debit card or another accepted payment method.
3. Save all receipts, invoices, and documentation as proof of payment for your records.
4. Access your 529 plan profile online and submit a withdrawal request for yourself or your chosen beneficiary.
5. Confirm the eligibility of your expense with your state or plan administrator before finalizing the withdrawal.

Keep in mind that since these updated rules are newly implemented, there may be a delay before your 529 plan expenses are fully approved. By understanding qualified expenses in advance, you can make the most of your education savings.

Which tests and licenses are covered by 529?

The expansion covers a wide range of exams, programs, and credentialing certificates, including:

• Professional certifications like FINRA licenses, CPA and other accounting credentials, medical certificates like the Certified Pharmacy Technician title, and IT courses like the CCNA
• Skilled trades, vocational licenses, and job training-related certifications
  • E.g., Commercial driver’s licensing (CDL), cosmetology school, plumbing or electrical apprenticeships, emergency medical services training, and more
• Related continuing education courses and exams
• Standardized and K-12 exams such as the SAT, ACT, CLT, and AP, and related prep

A wide range of costs is covered within each category, including exam registration fees, test preparation materials, and tutoring. For professional programs, you can double-check the Department of Labor’s page on the Workforce Innovation and Opportunity Act to see if a specific professional program qualifies.

Key takeaways

Given the scope of the OBBBA expansion, a broad array of exam-preparation costs now qualify as 529 qualified expenses. From SAT tutoring to professional teaching exam review materials to insurance exam registration fees, families and individuals have greater access than ever to pay for these educational services and programs.

Leveraging a tax-advantaged 529 plan requires careful assessment of your or your family’s specific goals, overall financial situation, and your personal investment approach. In the best-case scenarios, these plans can provide substantial value by reducing tax burdens on education-related expenses, offering enhanced flexibility, and financial peace of mind. To make the most of these tax benefits and find a plan that aligns with your needs, always speak with a qualified financial advisor before making investment decisions.