Sponsors (3)
The bill expands tax‑favored uses and contribution options for 529 education savings—making it easier for families (especially those who can save or receive large gifts) to pay for K–12 and college-related costs—while shifting tax benefits toward higher‑income households, reducing federal revenue, and pressuring state K–12 policy toward school‑choice programs with attendant fiscal and administrative costs.
Parents, families, and students (including students with disabilities) can use 529 plan funds tax-free for K–12 tuition, related materials, dual-enrollment and college‑admissions/standardized-test fees, and licensed educational therapies, reducing out-of-pocket education and therapy costs.
Donors (parents and others) may contribute an additional up to $20,000 per year into a child's 529 account without using their annual gift‑tax exclusion, making it easier to pre-fund college savings quickly and lowering gift‑tax reporting/liability for donors.
The bill clarifies the statutory dollar limit for allowable 529 distributions for K–12, reducing ambiguity for taxpayers, financial institutions, and the IRS about what distributions are permitted.
Wealthier families and large donors are likely to receive the largest benefits (ability to save more and make larger tax‑favored contributions), so the changes disproportionately help higher‑income households.
Expanding tax‑favored 529 uses and permitting larger tax‑free contributions will reduce federal tax receipts, which could increase deficits or force tradeoffs with other federal programs.
States that do not meet the bill's school‑choice criteria risk losing tax‑exempt status for some state and local bonds, likely raising borrowing costs for those state and local governments and their taxpayers.
Based on analysis of 5 sections of legislative text.
Expands 529 plans to cover many K–12 expenses, adjusts 529 distribution and gift-tax limits, and links municipal bond tax-exemption to state school-choice criteria.
Allows 529 college savings plans to pay for a broad set of K–12 expenses (tuition, curriculum, books, online materials, tutoring, testing fees, dual enrollment, and licensed therapies for students with disabilities), changes dollar limits and gift-tax treatment for 529 contributions, and ties tax-exempt status for state and local bond interest to whether a state meets specified "school choice" participation and spending-ratio thresholds. Some changes take effect immediately for distributions and bonds; other dollar- and gift-limit changes apply for tax years or gifts after December 31, 2026.
Introduced January 29, 2025 by Mike Lee · Last progress January 29, 2025