Sponsors (3)
The bill expands tax-advantaged 529 uses and donor exclusions to make K–12 expenses, therapy, tutoring, and college savings easier and cheaper for many families and supports school-choice-friendly states, but does so at the cost of federal revenue, greater benefits for wealthier households, increased administrative complexity, and potential pressure on public-school funding and state finances.
Parents, families, and students can use 529 funds tax-free for a broad set of K–12 expenses (tuition, curriculum/materials, tests), plus dual enrollment and licensed tutoring, lowering out-of-pocket elementary and secondary education costs and expanding access to academically targeted supports.
Students with disabilities can have occupational, behavioral, physical, and speech therapies paid from 529 plans, increasing access to needed therapeutic services without federal tax on distributions.
Parents and families gain a clear $10,000-per-year federal tax-free withdrawal limit for K–12 expenses, making it easier to pay school costs and plan taxes for future years.
Federal tax revenue will fall because of expanded tax-free 529 distributions (K–12 uses) and a larger annual gift tax exclusion, increasing long-term budgetary pressure and potentially crowding out other federal services or increasing deficits.
The changes disproportionately benefit households that already have 529 accounts or can make large gifts, favoring wealthier families and likely increasing inequality in educational advantage and savings opportunities.
Linking municipal bond tax-exemption to state adoption of specific school choice policies effectively federalizes a state education policy choice and risks diverting resources away from traditional public schools, reducing public school funding in some states.
Based on analysis of 5 sections of legislative text.
Allows 529 plans to cover many K–12 expenses, raises the K–12 cap to $10,000, increases 529 gift exclusion to $20,000, and limits tax‑exempt municipal bonds to States meeting school‑choice criteria.
Introduced January 29, 2025 by Mike Lee · Last progress January 29, 2025
Expands qualified 529 plan uses to cover many K–12 expenses (tuition, curricula, books, tests, tutoring, dual enrollment, and certain therapies) and makes those distributions effective on enactment. Raises the K–12 distribution cap to $10,000 and permits a larger annual gift-tax exclusion for 529 contributions (up to $20,000) beginning after 2026. Separately, it conditions federal tax-exempt treatment for state and local bonds on States having statutorily defined school-choice programs that meet minimum eligibility and per‑pupil spending thresholds, with a higher threshold required to avoid a modified exclusion rule; that bond change applies to bonds issued after enactment.