Sponsors (7)
The bill expands tax‑favored Coverdell account uses and creates employer/beneficiary incentives to boost access to workforce and adult education, but it raises penalties for misuse and adds administrative complexity while reducing federal revenue unless offset.
Students, young adults, and other beneficiaries can use Coverdell funds tax‑free for post‑age‑16 training (career/technical, youth workforce, adult education) and for related costs like required testing, transportation, computers, and internet, expanding access to skills development.
Employees and employers gain new incentives: employers may contribute to Coverdell accounts and receive a 25% nonrefundable credit while beneficiaries get a new deduction, lowering net costs of training and encouraging employer‑sponsored upskilling.
Broadening qualified expenses and allowing use of existing tax‑advantaged accounts for nondegree training is likely to increase participation in workforce and adult‑education programs, improving job‑readiness for participants who might otherwise lack funding.
Beneficiaries who use funds outside qualified uses face a doubled additional tax on nonqualified distributions (10% → 20%), increasing the risk of higher, unexpected tax bills for students and other account holders.
Allowing contributions to older ages, recharacterizing accounts as lifelong learning accounts, and adding new contribution/deduction/rollover mechanics will increase administrative complexity, reduce short‑term transparency during transition, and raise compliance and reporting burdens for trustees, financial institutions, the IRS, and account holders—heightening the chance of errors or inadvertent
The employer tax credit and other tax preferences reduce federal revenue and may increase the deficit unless offsets are provided, which could indirectly affect taxpayers or pressure future public spending/taxes.
Based on analysis of 2 sections of legislative text.
Renames Coverdell ESAs to Coverdell lifelong learning accounts and expands qualified expenses to include specified skill‑development and workforce training costs, treating pre‑2024 accounts as so designated.
Renames Coverdell education savings accounts as “Coverdell lifelong learning accounts” and updates Internal Revenue Code cross-references. It treats accounts established before January 1, 2024 as having been so designated and broadens the list of tax‑free “qualified expenses” to include specified post‑age‑16 training, career and technical education, career services, youth workforce activities, and adult education and related skill‑development costs, while leaving existing contribution limits and other substantive tax rules unchanged. The change is largely technical and definitional: it expands allowable uses of existing tax‑advantaged accounts to cover more workforce and skills training, rewords many statutory references, and adds a new statutory definition for "qualified educational or skill development expenses."
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