The "Skills Investment Act of 2025" expands Coverdell education savings accounts into "Coverdell lifelong learning accounts" to cover a broader range of skill development expenses, offers tax credits for employer contributions, and allows deductions for beneficiary contributions, aiming to promote lifelong learning and workforce development.
Glenn Thompson
Representative
PA-15
The "Skills Investment Act of 2025" renames and expands Coverdell education savings accounts into "Coverdell lifelong learning accounts" to cover a broader range of skill development and educational expenses. It modifies age restrictions and contribution rules, introduces a new tax credit for employers contributing to employee accounts, and allows beneficiaries to deduct contributions made to their accounts. These changes aim to promote lifelong learning and workforce development.
Coverdell Accounts Get a Makeover: New 'Lifelong Learning' Accounts Expand for Skills Training, But With a Catch for Those Over 30
The 'Skills Investment Act of 2025' is revamping those Coverdell education savings accounts you might have heard of. They're getting a new name – Coverdell lifelong learning accounts – and a broader purpose. Starting January 1, 2026, these accounts aren't just for college anymore. Section 2 of the bill lays out how they can now be used for a wide range of 'qualified educational or skill development expenses.' Think job training programs under the Workforce Innovation and Opportunity Act, career and technical education, and even things like transportation, testing fees, and internet access needed for those programs.
Beyond the Books: What's Covered?
This expansion means that if you're taking a coding bootcamp, getting certified in a trade, or need to brush up on skills for a promotion, your Coverdell account could help cover the costs. The bill specifically mentions things like career services and adult education, making it clear this isn't just for traditional students. For example, a mechanic needing updated certifications for electric vehicle repair could potentially use these funds, or a graphic designer taking courses to learn new software. This is a big shift from the previous focus on K-12 and college expenses.
Age Caps and Contribution Tweaks
Here's where it gets a bit more complicated. While the bill expands what you can use the money for, it also adds some new rules. If you're over 30, your account balance will be capped at $10,000 (Section 2). On the flip side, the bill raises the age limit for contributing to the account to 70, and it increases the contribution limit specifically for those over 30. So, you can keep saving longer, but there are limits on how much can be in there after a certain age. Also, once the original beneficiary turns 30, you can't change who the account is for.
Tax Breaks and Penalties
There's a new tax credit for employers who contribute to their employees' Coverdell accounts – a 25% credit for 'nonelective contributions' (Section 2). This could incentivize companies to invest in their workforce's skills. Individuals 18 or older who are beneficiaries of a Coverdell account can also now deduct their contributions (Section 2). However, there's also a bit of a sting: the additional tax on distributions not used for qualified expenses is going up from 10% to 20% (Section 2). There's an exception that keeps it at 10% for certain education expenses, but it's a clear message: use the money for its intended purpose, or pay a higher penalty.
The Bottom Line
The Skills Investment Act aims to make lifelong learning more accessible, and the expanded Coverdell accounts are a key part of that. The new employer tax credit and individual deduction could be a significant boost. But the $10,000 cap for those over 30, and the increased penalty for non-qualified withdrawals, are important caveats to consider. It will be interesting to see how people actually use these expanded accounts, and whether the new rules encourage or discourage participation, especially for older workers looking to reskill or upskill.