529 Savings Accounts Can Now Fund Your Trade Business: 'Fairness for the Trades Act' Expands Options

The "Fairness for the Trades Act" just changed the game for folks using 529 education savings accounts. Instead of just tuition and books, you can now use those funds for the tools and equipment you need to start or run a qualified trade business. This is a big deal for anyone going into skilled trades, and it kicks in for expenses incurred in taxable years starting after the Act's enactment.

New Tools for Your Trade

This bill expands what counts as a "qualified expense" for 529 plans. Now, it includes the cost of "tangible, depreciable property" used in specific trades. Think heavy-duty machinery, specialized tools, or even that high-tech diagnostic equipment your auto repair shop needs. The catch? It has to be something that depreciates – meaning it has a limited lifespan and loses value over time, and it needs to be for trades defined by specific North American Industry Classification System (NAICS) codes. This means that if you are starting an auto repair shop, you can now use your 529 to pay for that expensive diagnostic equipment, but if you are building a bookshelf, you can't use it to pay for the lumber. (SEC. 2)

Real-World Rollout

Imagine you're a young electrician starting your own business. Normally, you'd be looking at loans or dipping into personal savings to buy that pricey conduit bender or those specialized testing devices. Now, you can tap into your 529, which is usually tax-advantaged. Or, say you're a family that's been saving for your kid's college, but they decide to go to trade school and then start their own plumbing business. Those 529 funds can now cover the cost of the high-end tools they'll need. It gives families and individuals more flexibility in how they use their education savings.

The Fine Print

While this opens doors, there are potential hitches. The bill ties "qualified business trade expenses" to specific NAICS codes. Those codes are super detailed, and there might be some wrangling over what exactly fits and what doesn't. Plus, there's always the risk of folks trying to stretch the definition of "trade-related expenses." The IRS will likely need to provide clear guidance to keep things on the level. This means that it will be important to keep your receipts and make sure that all of your purchases fit the rules.

Bigger Picture

This law could be a real boost for vocational training and the trades, which are often overlooked in favor of traditional four-year college degrees. It acknowledges that starting a trade business can be just as financially demanding as getting a degree, and it levels the playing field a bit when it comes to using those valuable 529 savings. By expanding the ways people can use 529 funds, it might even encourage more folks to consider careers in the trades, addressing a growing need for skilled workers in many industries.