S-5227-119
Read twice and referred to the Committee on Finance.
Sponsored by Jon Husted (R-OH)
What it does
This bill would amend the Internal Revenue Code to allow tax-free withdrawals from 529 college savings accounts for the purchase of a first home, provided the account has been open for at least 15 years and the funds withdrawn were contributed more than 5 years before the withdrawal. Withdrawals used for a home purchase would be capped at a lifetime limit of $35,000 per beneficiary (shared with any Roth IRA rollover limit under existing law). If the home is sold or stops being used as a primary residence within 5 years of purchase, a portion of the tax benefit would be recaptured.
Who benefits
First-time homebuyers who have long-held 529 accounts and have not fully used them for education expenses — particularly those whose children did not attend college or received scholarships. Parents and grandparents who set up 529 accounts that went unused for education. Account beneficiaries in high-cost housing markets where down payment savings are a significant barrier. Financial institutions that administer 529 plans, which may see increased account activity and reduced account closures.
Who is hurt
Renters without existing 529 accounts — who represent a large share of people struggling to afford a first home — would receive no benefit. Lower-income households, who are less likely to have 529 accounts at all, may be indirectly disadvantaged relative to wealthier peers who can access this benefit. The federal government would forgo tax revenue on distributions that would otherwise be taxable. State governments that administer 529 programs may face administrative costs to implement the new rules. Existing homeowners competing with newly empowered first-time buyers in tight housing markets could face modestly increased competition.
Supporters argue
Supporters argue that millions of Americans hold 529 accounts with unused balances — often because a child received a scholarship, chose a lower-cost school, or skipped college — and that these funds are currently locked in with limited options. They contend that allowing a tax-free withdrawal of up to $35,000 for a first home purchase gives families a productive outlet for stranded savings while addressing a documented barrier to homeownership: the down payment. With median home prices elevated and first-time buyer rates near historic lows, supporters argue this provision targets a real affordability gap without creating new government spending.
Opponents argue
Opponents argue that this benefit is structurally limited to families wealthy enough to have funded a 529 account years in advance, meaning it does little for the first-time buyers who face the greatest affordability barriers. They contend that adding demand-side subsidies — putting more purchasing power in buyers' hands — without addressing housing supply may push home prices higher, potentially worsening affordability for buyers who lack 529 accounts. Critics also note the $35,000 lifetime cap is modest relative to median down payments in high-cost markets, limiting the practical impact while still reducing federal tax revenue.
Constitutional context
This bill modifies an existing federal tax provision under Congress's broad taxing and spending authority (Art. I, §8, cl. 1). No significant constitutional tension is present; Congress has well-established authority to create and modify tax incentives for savings accounts. The Origination Clause (Art. I, §7, cl. 1) requires revenue bills to originate in the House — this bill was introduced in the Senate, which could be a procedural issue if it advances, though Senate-originated tax bills are common and this issue is typically resolved through amendment to House-passed vehicles.
Checks and balances
Congress would expand the permissible uses of 529 accounts; the IRS would administer and enforce the new rules, including the recapture provisions; courts retain authority to review any disputes over the tax treatment of specific distributions.
Historical precedent
The SECURE 2.0 Act of 2022 previously expanded 529 flexibility by allowing unused balances to be rolled over into Roth IRAs (up to $35,000 lifetime), establishing the precedent this bill builds upon and coordinates with.