Two new education-focused tax proposals introduced in early 2025 could expand school choice and improve the flexibility of 529 college savings plans. The Achieving Choice in Education (ACE) Act, introduced by Senator Mike Lee (R-UT), and the Student Empowerment Act, introduced by Senator Ted Cruz (R-TX) and Representative Kevin Hern (R-OK), both seek to provide families with greater control over their children’s education.
Here’s what these bills propose and how they could impact families.
Achieving Choice in Education (ACE) Act
The ACE Act aims to expand school choice by making tax incentives contingent on state-level policies and increasing the benefits of 529 plans. Key provisions include:
- Doubling 529 Account Distributions: Families could withdraw up to $20,000 per year tax-free for qualified K12 education expenses, up from the current $10,000 cap.
- Higher Gift Tax Exclusion for 529 Contributions: The annual gift tax exclusion for contributions to a beneficiary’s 529 plan would increase to $20,000 per donor ($40,000 for a married couple filing jointly).
- Tying Tax-Exempt Municipal Bonds to School Choice Policies: States without robust school choice laws would lose the tax-exempt status of municipal bonds for certain projects, such as new school construction. States that expand school choice would retain these tax exemptions, incentivizing states to adopt policies supporting alternative education options.
Groups advocating for school choice, including Heritage Action for America, Parents Defending Education Action, and the Association of Christian Schools International, support the bill.
Student Empowerment Act
The Student Empowerment Act builds on the 2017 Tax Cuts and Jobs Act, which allowed families to use 529 plans for K-12 tuition. The new bill seeks to expand 529 plan eligibility further:
- Expanded Uses for 529 Plans: Parents could use 529 accounts for private, religious, and homeschool expenses, giving families more flexibility in choosing the best education path for their children.
- Support for Microschools and Homeschooling: This legislation would allow funds to cover costs associated with microschooling and other alternative education models.
- A Focus on Parental Choice: The bill aims to make 529s a broader education savings tool, ensuring families can use them beyond traditional college costs.
The American Federation for Children, the Home School Legal Defense Association, and the National Microschooling Center have supported this bill.
How Many Families Could These Bills Affect?
These proposals could impact a substantial portion of U.S. families:
- Homeschooling: While still representing a smaller share of education overall, homeschooling has grown significantly, reaching about 5.2% of students aged 5-17 in the 2022-23 school year, according to the National Center for Education Statistics (NCES).
- Private School Enrollment: According to NCES, approximately 4.7 million K–12 students were enrolled in private schools in the 2021–22 School Year, representing about 9% of the combined public and private school student population. This level of enrollment has been consistent over the past decade.
What’s Next?
Both bills emphasize school choice and 529 plan flexibility, but their success will depend on congressional approval. These changes could significantly impact families looking for alternative education options and better tax benefits if passed.
For parents and students, staying informed about these proposals and advocating for policies that align with their educational goals could be key to shaping future educational tax benefits.
