Sponsors (6)
The bill expands tax‑favored 529 uses, raises contribution/withdrawal limits, and ties municipal bond benefits to state school‑choice adoption—giving families and some states more financing options and schooling choices while reducing federal revenue, favoring wealthier savers, and creating equity and administrative challenges.
Parents and students can use 529 plan funds tax-free for K–12 tuition and a wide range of K–12 educational expenses (textbooks, curricula, tutoring, AP/college‑admission exams, dual enrollment), lowering out-of-pocket schooling costs and expanding schooling choices.
Students with disabilities can have licensed educational therapies (OT, PT, speech, behavioral) paid tax-free from 529 plans, reducing direct therapy costs for families with special needs children.
Higher contribution and withdrawal rules (larger tax-free K–12 withdrawals and a $20,000/year gift-tax exclusion) let families build education savings faster and reduce future borrowing or loan needs for schooling.
Widening tax‑free uses, larger withdrawal allowances, and a bigger gift‑tax exclusion will reduce federal tax receipts, potentially increasing the deficit or crowding out other federal spending unless offsets are enacted.
The tax benefits are likely to disproportionately help higher‑income families who already use 529 plans or can make large contributions, intensifying inequality in education savings and access.
Tying municipal bond tax advantages to state adoption of private‑school choice risks diverting federally-favored financing toward private education, placing pressure on public‑school resources and exacerbating inequities for low‑income students in non‑qualifying states.
Based on analysis of 5 sections of legislative text.
Introduced January 28, 2025 by Eric Burlison · Last progress January 28, 2025
Expands federal tax-preferred 529 college savings plans to allow many K–12 expenses (tuition, curriculum, books, tests, tutoring under limits, dual enrollment, and certain therapies for students with disabilities) to be paid tax-free from 529 distributions made after enactment. It also raises a numeric dollar limit in a 529 provision (text as provided reads "0,000"), increases the annual gift-tax exclusion that can be applied to 529 contributions (up to an additional $20,000 aggregate per year), and conditions federal tax-exempt treatment of state and local bond interest on whether a State meets defined “minimum school choice” criteria. Changes to 529 distributions and municipal bond tax rules take effect on enactment or for bonds issued after enactment; some numeric and gift-exclusion changes apply for taxable years or gifts after December 31, 2024. The bill shifts tax benefits toward families using 529 accounts for K–12 expenses and creates incentives (and penalties) for States to enact and fund school-choice programs if they want their bonds to retain federal tax-exempt status.