Sponsors (6)
The bill expands tax‑favored uses and contribution limits for 529 plans and creates incentives for state school‑choice programs—providing families more ways to pay for K–12 and education services while shifting tax benefits (and some fiscal costs) that may reduce federal revenue, favor wealthier donors, and pressurize public school and bond markets.
Parents and families can use 529 plan balances tax‑free for K–12 tuition, books, curriculum, tutoring, and exam fees, reducing out‑of‑pocket elementary/secondary education costs.
Students with disabilities can use 529 distributions for licensed occupational, behavioral, physical, and speech‑language therapies, expanding access to needed services.
Donors can exclude up to an additional $20,000 per year in gifts to a beneficiary’s 529 plan, letting families and benefactors contribute larger sums without using lifetime gift‑tax exemption and preserving estate tax space.
Taxpayers face reduced federal revenue from expanding tax‑free 529 uses and the larger gift‑tax exclusion, which could increase deficits or pressure funding for other federal programs.
The changes could redirect public support toward private and religious schooling (via broader 529 uses and state choice incentives), weakening public school funding and shifting education dollars away from traditional public systems.
States that do not enact extensive school‑choice programs risk losing tax‑exempt status for certain bonds, raising borrowing costs for state and local governments and potentially forcing higher local taxes or cuts to services.
Based on analysis of 5 sections of legislative text.
Expands 529 plan use to many K–12 expenses, raises gift-tax accommodation for 529 contributions (up to $20,000), and links municipal bond tax-exemption to state school-choice policies.
This bill expands the allowable uses of 529 college savings plans to cover many K–12 expenses (tuition, curriculum, tutoring, tests, dual enrollment, and certain therapies) and raises related limits on distributions and gift-tax treatment. It also conditions the federal tax-exempt status of interest on state and local bonds on whether a state adopts a defined set of "school choice" programs, partially denying or reducing the exclusion for bonds issued by states that do not meet those requirements.
Official title: To amend the Internal Revenue Code of 1986 to provide incentives for education.
Introduced January 28, 2025 by Eric Burlison · Last progress January 28, 2025