Sponsors (7)
Renames Coverdell ESAs to Coverdell lifelong learning accounts and expands qualified expenses to include specified skill-development and workforce-training costs, retroactive to accounts before 1/1/2024.
Official title: To amend the Internal Revenue Code of 1986 to provide for lifelong learning accounts, and for other purposes.
Introduced January 15, 2025 by Glenn Thompson · Last progress January 15, 2025
The bill expands tax‑advantaged Coverdell use and incentives to improve access to workforce and adult education, while creating greater tax complexity, transitional burdens for administrators and account holders, and modest fiscal costs plus higher penalties for misuse.
Students, young adults, and other beneficiaries can use Coverdell funds tax‑free for post‑age‑16 nondegree training, career/technical education, testing, transportation, computers, and internet access, improving access to skills development and reducing out‑of‑pocket training costs.
Employers receive a 25% nonrefundable credit for nonelective contributions and beneficiaries get a new deduction, which lowers employer cost to sponsor Coverdell accounts and reduces net costs for workers, incentivizing employer-sponsored upskilling.
Permitting contributions up to age 70 and recharacterizing Coverdell ESAs as lifelong learning accounts supports adult learners and older workers by making tax‑advantaged funds available for ongoing workforce development.
Recharacterizing accounts, new contribution/deduction mechanics, expanded uses, and other changes increase administrative and compliance complexity for trustees, financial institutions, the IRS, and account holders, creating transition costs, reporting updates, and a higher risk of inadvertent tax liabilities.
Raising the additional tax on nonqualified distributions from 10% to 20% increases the financial penalty for beneficiaries who use funds outside qualified purposes, raising the risk of higher taxes for some taxpayers.
The employer contribution credit will reduce federal tax revenue and could increase the deficit unless offsets are provided, which may indirectly affect taxpayers or public services.
Based on analysis of 2 sections of legislative text.
Renames Coverdell education savings accounts to "Coverdell lifelong learning accounts" throughout the Internal Revenue Code and makes conforming text changes. It also treats accounts established before January 1, 2024 as having been designated as Coverdell lifelong learning accounts and expands the definition of qualified expenses to allow tax-preferred distributions for specified post‑age‑16 training, career and technical education, career services, youth workforce activities, and adult education/skill development.