Sponsors (3)
The bill broadens and clarifies tax‑advantaged uses and contributions for 529 plans and creates incentives for state school‑choice programs—lowering near‑term education costs and expanding options for some families—while shifting tax benefits toward wealthier households, reducing some federal/state revenues, and risking higher borrowing costs or diverted funds for public schools in nonqualifying States.
Parents and families can withdraw up to $10,000 per year from 529 plans tax-free for K–12 tuition and related materials, lowering out-of-pocket elementary and secondary education costs.
Students with disabilities can use 529 distributions to pay for licensed educational therapies (occupational, behavioral, physical, speech-language), improving access to needed services.
Students and families can use 529 funds for dual‑enrollment courses and college‑admissions tests (AP, SAT/ACT), supporting earlier college credit accumulation and test preparation.
Residents and taxpayers in States that do not adopt the bill's qualifying school‑choice measures will see their state/local governments lose favorable tax treatment for certain bonds, likely raising borrowing costs and leading to higher local taxes or reduced public services.
Expanding tax‑free 529 uses reduces federal tax revenue, potentially increasing budget deficits or crowding out other federal spending priorities over time.
The expanded 529 benefits are likely to disproportionately help wealthier families (e.g., those already paying private K–12 tuition), reducing the progressivity of education tax benefits.
Based on analysis of 5 sections of legislative text.
Introduced January 29, 2025 by Mike Lee · Last progress January 29, 2025
Expands tax-preferred 529 education savings to pay for many K–12 expenses (tuition, curriculum, books, tests, tutoring, dual enrollment, and licensed therapeutic services) for students in public, private, or religious schools. It also raises the annual K–12 529 distribution limit to $10,000 (effective 2027 tax years), allows a larger annual gift-tax exclusion tied to 529 contributions (up to a $20,000 cap, effective 2027), and conditions federal tax-exempt treatment for state and local bonds on state adoption and scope of school-choice programs. The bill changes multiple parts of the tax code: what 529 plans can pay for, the dollar limits and gift-tax treatment related to 529 contributions, and the tax-exempt status of municipal bonds depending on whether a state meets defined “school choice” thresholds. Effective dates vary by provision (some provisions take effect at enactment; others apply to tax years or gifts beginning after December 31, 2026).