What This Bill Does
This bill changes how much money families can take from education savings accounts to pay for private elementary and secondary school tuition. It increases the yearly limit and adds automatic increases to keep up with inflation (rising costs over time).
Who It Affects
People who use qualified tuition programs, also called 529 plans (tax-advantaged savings accounts for education expenses).
Key Provisions
- The yearly limit on distributions (money taken out) from 529 plans for elementary and secondary tuition increases from a current amount to $12,000 (Sec. 2(a))
- Starting in 2024, the $12,000 amount automatically increases each year based on inflation, rounded to the nearest $500 (Sec. 2(b))
- The inflation adjustment uses the cost-of-living adjustment method established in tax law, comparing each year to 2022 as the baseline year (Sec. 2(b))
What Changes
If this becomes law, families can withdraw up to $12,000 per year from 529 plans for private school tuition instead of the previous limit. That $12,000 amount will grow automatically each year to match inflation.
Important Definitions
Qualified tuition programs (529 plans): Not specified in bill text
Effective Date
The changes apply to tax years beginning after December 31, 2022 (Sec. 2(c))
II
118TH CONGRESS
1ST SESSION
S. 426
To amend the Internal Revenue Code of 1986 to increase and provide an
inflation adjustment for the limitation on distributions from qualified
tuition programs that may be used for elementary and secondary tuition.
IN THE SENATE OF THE UNITED STATES
FEBRUARY 15, 2023
Mr. KENNEDY introduced the following bill; which was read twice and referred
to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to increase
and provide an inflation adjustment for the limitation
on distributions from qualified tuition programs that may
be used for elementary and secondary tuition.
Be it enacted by the Senate and House of Representa-
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tives of the United States of America in Congress assembled,
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SECTION 1. SHORT TITLE.
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This Act may be cited as the ‘‘Inflation-Adjusted
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Education Investment Act’’.
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•S 426 IS
SEC. 2. INCREASE ON LIMITATION ON EXPENSES USED FOR
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ELEMENTARY AND SECONDARY TUITION.
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(a) IN GENERAL.—The last sentence of section
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529(e)(3)(A) of the Internal Revenue Code of 1986 is
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amended by striking ‘‘$10,000’’ and inserting ‘‘$12,000’’.
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(b) INFLATION ADJUSTMENT.—Section 529(e)(3) of
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the Internal Revenue Code of 1986 is amended by adding
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at the end the following new subparagraph:
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‘‘(C) INFLATION ADJUSTMENT.—
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‘‘(i) IN GENERAL.—In the case of any
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taxable year beginning in a calendar year
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after 2023, the $12,000 amount in sub-
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paragraph (A) shall be increased by an
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amount equal to—
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‘‘(I) such dollar amount, multi-
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plied by
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‘‘(II) the cost-of-living adjust-
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ment determined under section 1(f)(3)
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for the calendar year in which the tax-
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able year begins, determined by sub-
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stituting ‘calendar year 2022’ for ‘cal-
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endar year 2016’ in subparagraph
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(A)(ii) thereof.
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‘‘(ii) ROUNDING.—Any increase deter-
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mined under clause (i) shall be rounded to
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the nearest multiple of $500.’’.
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•S 426 IS
(c) EFFECTIVE DATE.—The amendments made by
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this section shall apply to taxable years beginning after
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December 31, 2022.
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Æ
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