529 Plans for Business Owners: Funding and the 2026 Rules
How education savings plans work for an owner's family, the five-year gift election, the expanded uses the 2025 law added, the Roth rollover, and why the business cannot deduct contributions.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
A 529 plan is a state-sponsored education savings account: contributions are after-tax, growth is tax-free, and withdrawals for qualified education costs are tax-free. The 2025 law widened qualified uses to more K–12 costs and to credentialing programs from mid-2025. Business owners fund them personally — the business cannot deduct contributions — and can front-load five years of gifts at once.
On this page
What can the money be used for?
| Expense | Qualified? |
|---|---|
| College and graduate tuition, fees, books, supplies, computers | Yes |
| Room and board for students enrolled at least half-time | Yes, up to the school's cost of attendance |
| Private, public, or religious K–12 tuition and, for distributions after July 4, 2025, curriculum materials, tutoring, testing fees, dual enrollment fees, and certain therapies | Yes, up to $20,000 per year per beneficiary from 2026 (previously $10,000) |
| Postsecondary credentialing programs and licensing exam costs | Yes, for distributions after July 4, 2025 |
| Apprenticeship program costs | Yes |
| Student loan repayment | Yes, up to $10,000 lifetime per beneficiary (and per sibling) |
| Rollover to a Roth IRA for the beneficiary | Yes, up to $35,000 lifetime after the account has been open 15 years, excluding contributions (and their earnings) from the last five years, subject to the annual Roth IRA contribution limit |
Non-qualified withdrawals are taxed on the earnings portion plus a 10 percent penalty.
How do contributions work?
There is no federal deduction, and Florida — with no income tax — offers none; residents of other states may get a state deduction for their own state's plan. Contributions are gifts to the beneficiary: up to the annual exclusion ($19,000 per donor per child in 2026) without a gift tax return, or five years' worth at once — up to $95,000, or $190,000 for a married couple — under the five-year election (reported on Form 709), which removes the money from the donor's estate while the donor keeps control of the account (if the donor dies within the five years, the portion allocated to the remaining years is included in the estate).
Why can't the business contribute?
A business contribution for the owner's child is the owner's personal expense. A business that contributes for an employee's child is paying wages — taxable to the employee, deductible to the business — unless done through a program that qualifies for an exclusion, which 529 contributions do not.
What if the child does not use it?
Change the beneficiary to another family member (including the owner), roll leftover funds to the beneficiary's Roth IRA within the lifetime limit, use it for the beneficiary's graduate school or credentialing, or withdraw and pay tax and penalty on earnings only. Scholarships let you withdraw the matching amount penalty-free.
Frequently asked questions
Can grandparents in Canada contribute?
Anyone can contribute to a U.S. 529 plan. A Canadian-resident contributor generally owes no U.S. gift tax on a contribution paid from a Canadian account — for nonresidents the tax reaches gifts of U.S.-situs real and tangible property — and the plan is a U.S. account for Canadian reporting purposes.
Does a 529 affect financial aid?
A parent-owned account is assessed at a low rate for federal aid; grandparent-owned accounts are no longer counted on the federal application.
Is K–12 private school tuition a good use?
The account's benefit is tax-free growth, which needs time; short-horizon K–12 use captures little of it in a no-income-tax state.
Can I open an account for a child not yet born?
Open it in your own name as beneficiary and change the beneficiary after the birth; because the child is a generation below you, the change counts as a gift from you to the child, usually covered by the annual exclusion.
Official sources
The IRS explains: “These qualified higher education expenses in connection with a designated beneficiary's enrollment or attendance at an elementary or secondary school are limited up to a total amount of $20,000 per year ($10,000 limit before Dec. 31, 2025) from all of the designated beneficiary's QTPs.” — Internal Revenue Service, Topic no. 313, Qualified tuition programs (QTPs), https://www.irs.gov/taxtopics/tc313
The IRS explains: “Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. For purposes of QTPs, the expenses can be either qualified higher education expenses, qualified elementary and secondary education expenses, or post secondary credential expenses.” — Internal Revenue Service, Publication 970 (2025), Tax Benefits for Education, https://www.irs.gov/publications/p970
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk files the five-year election and tracks qualified withdrawals so the growth stays tax-free. See pricing or book a free fit call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
Book a free fit call