WASHINGTON – Sen. John Kennedy (R-La.) today introduced the Inflation-Adjusted Education Investment Act to help parents defray the cost of elementary and secondary education by permanently raising the tax-free withdrawal cap for 529 plans for qualified K-12 tuition expenses.
“When many public schools shut down during the pandemic, parents had to find other education options. Now, rampant inflation is making it harder on parents who have turned to private schooling. My bill would give parents more options for making the education that best fits their children’s needs affordable,” said Kennedy.
The bill raises the current cap on withdrawing from a 529 plan from $10,000 to $12,000 for 2022, which adjusts for inflation that has already occurred and is likely to occur by the end of the year. Additionally, the bill would make the new cap adjustable for inflation beginning in 2023. Because of high inflation, $10,000 in January 2018 would be equal to almost $11,700 today.
The specific tax advantage of a 529 plan is that distributions from this savings plan are tax-free if they are used to pay for qualified higher education expenses. The 2017 Tax Cuts and Jobs Act gave parents the freedom to withdraw up to $10,000 tax-free each year for each beneficiary and to use the funds for qualifying K-12 expenses. Those expenses include private and religious schooling.
Text of the bill is available here.