Sponsors (3)
The bill expands and clarifies tax-advantaged 529 uses and raises contribution flexibility to help families pay for K–12, college prep, and therapies, but the benefits disproportionately help higher-income savers, reduce tax receipts, pressure states toward private‑school choice, and add administrative complexity.
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 (occupational, behavioral, physical, speech-language) are explicitly covered, reducing out-of-pocket education and therapy costs and supporting college-readines
Parents, beneficiaries, and financial institutions get a clarified statutory dollar limit for allowable 529 distributions, reducing ambiguity about taxable treatment and easing IRS/taxpayer interpretation of the rule
Donors (e.g., parents, grandparents) can contribute up to an additional $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 large contributions
Higher-income families who can afford to save or make large contributions are most likely to benefit, so the changes skew tax advantages toward wealthier households and may exacerbate existing equity gaps in education funding
Broader tax-free 529 withdrawals and larger sheltered contributions will likely reduce federal tax receipts (and gift-tax receipts), increasing budgetary pressure that could raise deficits or crowd out other spending
Conditioning federal tax benefits on state adoption of school-choice programs and allowing 529 use for private/religious tuition effectively channels public tax benefits to private education, which could reduce resources for public schools and shift K–12 policy toward vouchers/ESAs
Based on analysis of 5 sections of legislative text.
Expands 529 plans to cover many K–12 expenses, raises gift exclusion for 529 contributions, adjusts 529 limits, and ties muni bond tax-exemption to state school-choice thresholds.
Official title: Amend the Internal Revenue Code of 1986 to provide incentives for education.
Introduced January 29, 2025 by Mike Lee · Last progress January 29, 2025
Expands federal tax-preferred 529 college savings plans to allow distributions for a wide range of K–12 expenses, raises the per-recipient gift exclusion for contributions to 529 plans by up to $20,000, adjusts a numeric dollar limit tied to K–12 distributions, and ties federal tax-exemption for interest on state and local bonds to whether a state meets specified “school choice” thresholds. Most tax-preference changes apply after enactment or for taxable years beginning after Dec. 31, 2026; Treasury is directed to determine state qualification for municipal bond interest treatment.