The tax landscape for education savings and health savings accounts is poised for potential change, thanks to new legislation under review in Congress.
Proposed updates in the House Ways and Means Committee’s 2025 tax package could expand the flexibility of 529 college savings plans and simplify health savings account (HSA) rules.
If passed, these changes could affect millions of American families who rely on these tax-advantaged tools for education and health care savings, according to a summary of the bill published by the House Ways and Means Committee.
The growing importance of 529 plans
Roughly 10 million U.S. households identify education as a primary investment goal, with approximately 11.1 million households owning 529 plans, based on data from the College Savings Plans Network.
These tax-advantaged accounts now number around 16.1 million nationwide, with an average balance of approximately $31,100 and more than $500 billion in total assets, according to a 2024 report by PlanSponsor.
Despite those figures, 529 plans represent just a small portion of the broader $38.8 trillion U.S. mutual fund market, as reported by the Investment Company Institute. Analysts suggest that limited awareness and confusion about how these accounts work contribute to their relatively modest adoption.
Proposed expansions to 529 plan eligible expenses
Currently, 529 funds can be used for college expenses and, in limited cases, up to $10,000 annually in K–12 tuition. The 2025 proposal seeks to expand eligible tax-free uses to include:
- Textbooks, tutoring services, and standardized testing fees for K–12 students
- Costs related to earning and maintaining post-secondary credentials
- Professional certifications beyond traditional college degrees
This would mark a shift from college-only savings toward broader lifelong learning support. The House Ways and Means Committee noted in its proposal that these updates are meant to reflect the changing nature of education and workforce training in the U.S.
Who benefits from education savings accounts?
Education savers come from a wide range of backgrounds. According to the College Savings Plans Network, about 52% of households with 529 plans are under age 45. In terms of education level, 63% of account holders have completed college, 19% have some college, and 18% have a high school diploma or less.
Contrary to common assumptions, more than one-third of households that save for college earn less than $100,000 annually. This challenges the perception that 529 plans are only for high-income families. The most consistent trait among these savers? Most have children under 18 living at home.
Why these changes matter
The cost of higher education remains steep. According to the College Board, average annual costs total about $20,570 for public two-year colleges and as much as $62,990 for private nonprofit four-year institutions.
More flexible 529 usage could offer significant financial relief. These latest legislative efforts follow earlier expansions, including the SECURE Act of 2019, which allowed 529 funds to be used for apprenticeships and student loan repayment.
More recently, SECURE 2.0 legislation permitted unused 529 assets to be rolled into Roth IRAs starting in 2024, as noted by Fidelity and Invest529 in their respective coverage of the law.
Potential HSA rule simplifications
Health savings accounts could also see important updates. Currently, spouses 55 or older must have separate HSAs to make individual catch-up contributions. The new proposal aims to simplify this rule.
The proposed legislation would allow these catch-up contributions to be deposited into a single shared HSA, a change designed to simplify savings logistics for married couples.
Another update would fix a long-standing quirk in the law where one spouse’s participation in a Flexible Spending Account (FSA) at work can disqualify both from contributing to an HSA. According to analysis by EisnerAmper, these technical corrections aim to align HSA rules more closely with how modern households manage benefits.
Additionally, the proposal includes slight increases to HSA contribution limits, raising the individual cap from $4,150 to $4,300 and the family cap from $8,300 to $8,550, based on projections cited by Ascensus.
Planning considerations
If this legislation passes, families should consider:
- Reevaluating education funding strategies to include more K–12 and career-related expenses
- Using 529 plans not only for college but also for lifelong learning and professional advancement
- Simplifying HSA contribution strategies, particularly for couples approaching age 55
While the proposed changes are not yet law and remain subject to revision, they signal a potentially significant shift in how Americans can use tax-advantaged savings vehicles.
As always, it is a good idea to consult a financial advisor before making changes based on proposed legislation.
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