Sponsors (6)
The bill expands tax-advantaged uses of 529 savings and incentives for state school-choice adoption—making K–12, college-prep and special-needs services more affordable for families who already save—while reducing federal revenue, risking depletion of college savings, skewing benefits toward wealthier donors, and pressuring state education and municipal financing choices.
Parents and families can withdraw up to $10,000 per year from 529 accounts tax-free for K–12 tuition, materials, dual-enrollment and college-prep fees, lowering out-of-pocket schooling and prep costs.
Families of students with disabilities can use 529 distributions to pay for licensed educational therapies (e.g., occupational, speech, behavioral), covering medically/educationally necessary services.
Clarifying that 529 funds may be used for specified K–12 and related expenses reduces tax uncertainty and administrative burden for taxpayers and the IRS when applying 529 rules.
All taxpayers could face modestly lower federal revenue because expanding tax-preferred 529 uses and larger gift exclusions reduce tax receipts, potentially increasing the deficit or crowding out other spending unless offset.
Parents and students who use 529 funds for K–12 purposes may deplete college-dedicated savings, reducing funds available for higher education and potentially increasing future college costs for those students.
The changes primarily benefit families and donors who already have 529 accounts or can make large contributions, so low-income families without 529 savings are unlikely to benefit and the policy may increase inequity.
Based on analysis of 5 sections of legislative text.
Allows 529 plans to pay many K–12 expenses, raises the K–12 distribution limit to $10,000, increases 529 gift exclusion to $20,000, and ties bond tax-exempt status to state "school choice" metrics.
Introduced January 28, 2025 by Eric Burlison · Last progress January 28, 2025
Expands tax-advantaged 529 education savings plans to explicitly cover many K–12 expenses for students in public, private, or religious elementary and secondary schools, including tuition, curriculum materials, testing fees, tutoring (with limits), dual-enrollment fees, and certain therapies for students with disabilities. It also increases the K–12 distribution limit to $10,000 (effective for taxable years after 2024) and allows larger annual gift contributions to 529 plans (up to $20,000) without triggering gift tax rules. Changes federal tax-exempt treatment of state and local bonds by limiting full or partial tax-exempt status to bonds issued by states that meet new “school choice” eligibility and funding thresholds; bonds issued by other states would lose that favorable federal tax status. Effective dates vary by provision (some apply after enactment; some apply to taxable years/gifts after Dec 31, 2024).