In every federal budget bill, everyone can find something to like and everyone can find something to hate. The “One Big Beautiful Bill” (H.R.1) of 2025 is no different. One provision that doctors and nurses will like pertains to changes in the rules for 529 plans.
529 plans have been around for many years and have been primarily used to save for children’s college expenses. These plans allow a parent (or grandparent) to contribute post-tax dollars into a child’s 529 account and then those dollars can be invested in a variety of mutual funds. The money grows tax-free and when money is taken out of the account for qualified educational expenses, the withdrawals are not taxed. Furthermore, many states offer additional incentives to contribute to 529 plans. As an example, in Ohio, we can deduct up to $4,000 on our state income tax returns every year for contributions of up to $4,000 into each child’s account. I have 4 children and when saving for their college expenses, I could annually contribute $4,000 to each of their accounts and then deduct $16,000 on my Ohio income tax return. Parents (and any adults) could also contribute to a 529 plan in their own name to use for their own higher education expenses, for example, getting a master’s degree. Lastly, any residual funds in the 529 account after a child finishes college can be rolled over into another child’s or grandchild’s 529 account. These features have made 529 plans unbeatable as a mechanism to save for college.
The One Big Beautiful Bill Act of the 119th Congress in 2025 makes important changes to 529 plans that will benefit physicians, nurses, and any healthcare provider who must take certification exams or continuing education in order to maintain licensure or credentials. Section 70414 of the bill allows 529 withdrawals to be used for “certain postsecondary credentialing expenses treated as qualified higher education expenses for purposes of 529 accounts”. The actual wording of section 70414 of the budget bill is shown in the next 5 images (further discussion below images).
The wording of Section 70414 implies that the cost of board examinations and maintenance of certification programs could be covered by 529 withdrawals:
“For purposes of this section…The term ‘qualified postsecondary credentialing expenses’ means:
(A) tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary in a recognized postsecondary credential program, or any other expense incurred in connection with enrollment in or attendance at a recognized postsecondary credential program if such expense would, if incurred in connection with enrollment or attendance at an eligible educational institution, be covered under subsection (e)(3)(A)
(B) fees for testing if such testing is required to obtain or maintain a recognized postsecondary credential, and
(C) fees for continuing education if such education is required to maintain a recognized postsecondary credential.”
In addition, it implies that the cost of one’s state medical license could be covered by 529 withdrawals as well as the cost of continuing medical education required to maintain a medical license:
“For purposes of this section… the term ‘recognized postsecondary credential’ means… any occupational or professional license issued or recognized by a State or the Federal Government (and any certification that satisfies a condition for obtaining such a license)…”
But… be cautious!
How any tax law affects an individual depends on two things; (1) the wording of the law and (2) how courts interpret the law. Even though the wording of the 2025 budget bill appears to give us the ability to use 529 withdrawals for board exams, license fees, and continuing medical education expenses, it is possible that the Internal Revenue Service might deny them for some reason and courts could side with the IRS. My reading of the bill indicates that this would be highly unlikely but there remains a risk (albeit small) that the IRS could interpret Section 70414 differently than I do.
Regardless, do not be overzealous with what you use 529 withdrawals for. As an example, the provision allows for withdrawals to be used for continuing education. Logic would imply that a physician could use 529 withdrawals to cover the registration fees for a continuing medical education conference. But the IRS may not allow you to use withdrawals for the cost of a hotel room and meals at the conference.
Many physicians file a Schedule C on their annual federal income tax returns for consulting and other self-employment income. If a medical license and/or continuing medical education is required for the physician to do those Schedule C activities, many physicians deduct license fees and medical conference expenses on Schedule C. For some physicians, the tax benefit of that Schedule C deduction may be greater than the tax benefit of paying those expenses using 529 funds. It is unlikely that the IRS will permit physicians to both use 529 withdrawals and take a Schedule C deduction for the same expense of attending a medical conference (a Schedule C deduction is supposed to only apply to Schedule C income earned in that year).
Here is what physicians should do now
- Open a 529 account in your name. If you have children or grandchildren, then there is little risk because even if you personally do not use those funds, you can always roll the funds over to a child’s or grandchild’s account.
- Get to know your state’s 529 plan. Every state has different rules around 529 plans with many states (such as Ohio) allowing a certain amount of annual contributions to be tax-deductible from that state’s income tax returns. In other states, contributions are not tax-deductible.
- Talk to your tax preparer. I am not a tax attorney nor a certified public accountant. Your own attorney or accountant may interpret Section 70414 very differently than I do so consult whoever assists you with your taxes before you do anything.
- If you usually submit a Schedule C, do some math. Say your effective federal income tax rate is 17%. If you get less than a 17% return on your investment in a 529 plan after 1 year, then you’d be better off taking the cost of your medical license and continuing medical education as a deduction on Schedule C instead of using 529 withdrawals. If you do not normally file a Schedule C, then using a 529 account would be prudent.
- Watch the news. Many Americans may consider the provisions of Section 70414 to be a loophole that mainly benefits the wealthy. Political pressure could result in restricting or eliminating some of these provisions in future legislation. The 2025 budget bill will significantly increase the nation debt and congress could close loopholes in attempts to minimize that debt.
- Keep records. The IRS may choose to target tax returns that include 529 withdrawals for audit. Be sure to keep receipts for medical licenses, medical education conferences, and board examinations in case you are audited.
July 4, 2025
