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The bill makes 529 withdrawals more generous and flexible to help families pay for college, but the benefit mainly accrues to savers (often higher-income households) and reduces federal revenue.
Parents, families, and students who use 529 college savings plans can withdraw larger amounts tax-free for higher education expenses, lowering out-of-pocket college costs.
Taxpayers who have saved in 529 plans gain greater flexibility to cover rising tuition and education-related costs without triggering tax on distributions.
Low-income households are unlikely to benefit much because the change mostly helps families who can afford to contribute to 529 plans, widening the distributional gap in education tax benefits.
Larger tax-free 529 withdrawals will reduce future federal tax revenue, which could increase budget deficits or require spending offsets or revenue increases elsewhere.
Based on analysis of 2 sections of legislative text.
Increases the dollar limit that defines qualified higher education expenses for tax-free 529 plan distributions.
Introduced June 30, 2025 by Eric Stephen Schmitt · Last progress June 30, 2025
Amends the Internal Revenue Code to raise the dollar limit that defines how much of a 529 plan distribution can count as a qualified higher education expense. The change affects the calculation of tax-free withdrawals from 529 accounts and takes effect for taxable years beginning after December 31, 2025.