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S311119th CongressWALLET

ACE Act

Sponsored By: Senator Lee, Mike [R-UT]

Introduced

Summary

Expands 529 plans to cover a broad set of K–12 and homeschool expenses and ties municipal bond tax breaks to state school choice rules. The bill would raise the K–12 529 distribution cap to $20,000 and add a special increase to the annual gift tax exclusion for 529 contributions.

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  • Families with school-age children would be able to use tax-free 529 money for curriculum, books, online instructional materials, tutoring, testing fees, dual enrollment, and homeschool tuition. The annual limit for these K–12 uses would increase from $10,000 to $20,000.
  • Students with disabilities and their families could use 529 funds for licensed educational therapies such as occupational, behavioral, physical, and speech-language therapy.
  • Savers and donors would get an added gift tax break for 529 contributions, allowing up to an extra $20,000 of exclusion for gifts made to a 529 account.
  • States and bond investors would face new rules. Only bonds from states that meet minimum school choice tests would keep full tax-exempt interest. A state would qualify if at least 40% of its children are eligible for choice programs and eligible children receive at least 60% of the per-child spending of non-eligible children. Bonds from nonqualifying states would have only 50% of the usual tax exemption on interest.

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Bill Overview

Analyzed Economic Effects

2 provisions identified: 1 benefits, 1 costs, 0 mixed.

More 529 help for families

This bill would let families use more 529 money for K–12 and higher education. You would be able to withdraw for many elementary and secondary expenses, including tuition, curriculum, books, online materials, dual-enrollment fees, test fees, certain tutoring, and specified therapies. Homeschool expenses would be included whether state law treats homeschool as homeschool or private school. You could withdraw up to $20,000 a year for K–12 costs in tax years beginning after December 31, 2026. The bill would also let up to $20,000 of gifts to a beneficiary's 529 plan count toward the annual gift tax exclusion for gifts made after December 31, 2026. Tutoring and therapy rules require the tutor or provider to meet listed qualifications.

New limits on tax-free municipal bonds

This bill would limit the federal tax exemption for interest on new state and local bonds unless the State meets new school choice tests. A "minimum school choice State" would need school choice programs, at least 40% of children eligible for a program, and eligible children to receive at least 60% of per-child spending compared with non-eligible children. If a State meets lower tests or for many local-issued bonds, only 50% of the interest exclusion would apply. The rule would apply to bonds issued after enactment.

Sponsors & CoSponsors

Sponsor

Lee, Mike [R-UT]

UT • R

Cosponsors

  • Sen. Budd, Ted [R-NC]

    NC • R

    Sponsored 1/29/2025

  • Sen. Schmitt, Eric [R-MO]

    MO • R

    Sponsored 2/12/2025

Roll Call Votes

No roll call votes available for this bill.

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