HR-7468-119
Referred to the House Committee on Ways and Means.
Sponsored by Tracey Mann (R-KS)
What it does
This bill would amend the Internal Revenue Code to allow tax-free withdrawals from 529 college savings accounts for first-time home purchases, provided the account has been open for at least 15 years. Withdrawals would be limited to contributions and earnings made more than 5 years before the distribution, capped at $35,000 lifetime per beneficiary (shared with any Roth IRA rollover limit), and must be used within 60 days of withdrawal to purchase a principal residence. If the home is sold or ceases to be the buyer's primary residence within 5 years, a portion of the tax benefit would be recaptured, phasing out by 20% for each full year of ownership.
Who benefits
First-time homebuyers who have had 529 accounts open for at least 15 years — primarily millennials and older Gen Z individuals whose parents opened accounts for them in childhood. Families who over-saved in 529 accounts beyond what was needed for education costs. Parents who opened 529 accounts early and want flexibility in how funds are used. Real estate agents and home sellers in markets where first-time buyer demand increases. Mortgage lenders who may see expanded qualified buyer pools.
Who is hurt
Higher education institutions and the broader college savings ecosystem, if 529 funds are diverted away from educational use. Renters who do not have 529 accounts — typically lower-income individuals — who would not benefit and may face increased home price competition. Existing homeowners in tight housing markets who could see upward price pressure if demand increases. State 529 program administrators who may face reduced long-term account balances. Taxpayers broadly, who would forgo federal revenue from what would otherwise be taxable distributions.
Supporters argue
Supporters argue that the housing affordability crisis has made down payments the single largest barrier to homeownership for younger Americans, and that 529 accounts represent a pool of savings that is often stranded when education costs are lower than anticipated. They contend that allowing flexible use of these long-held accounts — subject to strict eligibility rules, a 15-year seasoning requirement, and a $35,000 cap — provides a targeted, fiscally modest pathway to homeownership without creating new government spending, while giving families more control over savings they have already set aside.
Opponents argue
Opponents argue that 529 accounts were specifically designed and tax-advantaged to encourage education savings, and that expanding their use to home purchases undermines that policy purpose and erodes the tax base without a clear housing supply benefit. They contend that the bill primarily benefits families wealthy enough to have maintained 529 accounts for 15 or more years, making it a tax reduction that disproportionately flows to higher-income households, while doing nothing to address the underlying shortage of housing inventory that drives affordability problems for most first-time buyers.
Constitutional context
This bill modifies the Internal Revenue Code, which falls squarely within Congress's taxing and spending authority under Article I, Section 8. The Origination Clause (Art. I, §7, cl. 1) requires revenue bills to originate in the House — this bill was introduced in the House and referred to the Ways and Means Committee, satisfying that requirement. No active constitutional tension areas are implicated.
Checks and balances
Congress gains authority to define new tax-preferred uses for 529 accounts; the IRS would implement and enforce the recapture rules and eligibility requirements through regulations; courts retain authority to review any disputes over the tax treatment of specific distributions.
Historical precedent
The SECURE 2.0 Act of 2022 established a similar precedent by allowing unused 529 funds to be rolled over into Roth IRAs (up to $35,000 lifetime), demonstrating Congress's willingness to expand 529 account flexibility beyond education expenses.