For those looking to save additional amounts beyond the limit of the 529 plans, the OBBBA also created a new program called the Money Accounts for Growth and Advancement (MAGA) which can be funded up to $5,000 per year. These contributions can be from a parent or guardian for a child under the age of 8 and any gains would be taxed at long-term capital gains rates when used for higher education expenses, a first-time home purchase or starting a small business. Funds that are withdrawn for other purposes will be taxed at ordinary income tax rates with penalties. Any MAGA account opened for a child who was a US Citizen at birth and born between January 1, 2025 and January 1, 2029 can receive a one-time contribution of $1,000 directly from the Federal government. The $1,000 deposits will commence January 1, 2026.
The Achieving a Better Life Experience (ABLE) accounts also benefit from the OBBBA. Families who have 529 plans but want to transfer funds into ABLE accounts only had until December 31, 2025 to do so. The OBBBA has removed the expiration date and rollovers from 529 plans into ABLE accounts are now permitted beyond 2025.
Some additional changes impacting ABLE accounts are as follows:
- Employed individuals can contribute more than the annual limit. The ABLE-to-Work provision would have expired in 2025 but is not permanent.
- Contributions to ABLE accounts up to $2,000 are eligible for 50% saver’s credit (max of $1,000)
- Account eligibility expands to individuals whose disability began before age 46 (no longer before age 26). This is effective January 1, 2026.
Work with your families to help them take advantage of these enhancements which make the 529 plans even more attractive than just the tax-free growth.
Kimberly R. Roffi, CPA
Partner
Kim, who has been a member of the firm since 2001, has over 19 years of public accounting experience. Today, she is a partner of the firm and previously served as Director for the firm’s tax and business advisory practice and Director of Finance and Operations for the firm internally. Kim has written Practice Insights for Lexis Nexis’ tax research platform and has been published in Building Long Island magazine.
