Congress raises 529 tax break, but mainly helps the wealthy save more
S. 2206 — A bill to amend the Internal Revenue Code of 1986 to increase the limitation on distributions from 529 accounts for qualified higher education expenses. · Filed by Eric Schmitt (R-MO) · Introduced Jun 30, 2025 · Referred to committee
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What it does
This bill doubles the annual limit on tax-free withdrawals from 529 college savings accounts from $10,000 to $20,000 per beneficiary per year, effective for tax years starting in 2026. Families saving for education can now withdraw twice as much per year without tax penalty, making it easier for middle- and upper-income households to pay tuition, room, board, and other qualified education costs.
Why we flagged it
The bill is a straightforward amendment to the Internal Revenue Code that increases a tax-advantaged savings limit. It is not deregulation, not a carve-out, and not a subsidy — it is a direct expansion of an existing tax preference for education savings.
What the text implies
- Increases the annual tax-free withdrawal limit but does not address the underlying cost of higher education, which continues to rise faster than inflation.
- Concentrates the tax benefit among higher-income households that have the capacity to save $20,000 annually in a 529 account; lower-income families remain unable to benefit proportionally.
The full analysis lists 4 implications of this text.
Who stands to gain
families with 529 accounts (disproportionately higher-income households); investment firms managing 529 plans; state-sponsored 529 plan administrators