ACE Act Expands 529 Plans to Cover Homeschooling and More, But Ties Tax-Exempt Bonds to School Choice

The Achieving Choice in Education (ACE) Act aims to significantly revamp how families can save for and spend on education, from K-12 all the way through college. It does this primarily through changes to 529 savings accounts and new rules around state-level tax-exempt bonds.

529 Savings Get a Major Boost

The ACE Act broadens what you can use 529 savings plans for. Previously limited, the bill, if passed, would specifically include homeschooling expenses under the umbrella of "qualified education expenses" (SEC. 2). This means families could use 529 funds for curriculum materials, books, online resources, and even tutoring (with some restrictions on who can provide the tutoring). The bill also throws in fees for standardized tests, AP exams, and dual enrollment programs. Think of it like this: if your kid is homeschooled and needs a specialized math tutor, or if they're taking AP Physics and you need to cover the exam fee, a 529 plan could now be your go-to financial tool. For families already using private schools, the bill increases the amount you can withdraw from a 529 plan for elementary and secondary school expenses from $10,000 to $20,000 per year, starting in 2025 (SEC. 3).

More Money, More Options

Beyond expanding what 529 plans can cover, the ACE Act lets people contribute more to these accounts without getting hit with gift taxes (SEC. 4). This change kicks in after December 31, 2024, and could be a significant benefit for families with grandparents or other relatives wanting to contribute substantially to a child's education.

The School Choice Catch: Tax-Exempt Bonds

Here's where things get interesting, and potentially controversial. The ACE Act ties the issuance of tax-exempt bonds to a state's adoption of "school choice" programs (SEC. 5). Basically, states need to meet certain criteria to be considered a "minimum school choice state." These criteria include having at least 40% of school-age children eligible for school choice programs (like vouchers or education savings accounts) and spending at least 60% on students in these programs compared to what they spend on students in traditional public schools. If states meet a higher threshold (65% eligibility and 75% spending), they get a bigger tax break on the bonds. This section essentially incentivizes states to expand school choice programs, or risk losing out on favorable bond terms. This could be a game-changer for states deciding how to structure their education systems, with potential knock-on effects for public school funding depending on how states respond.

Real World Rollout

This bill, if enacted, could mean big changes for families and state governments. A family homeschooling their children could suddenly have a tax-advantaged way to pay for a wide range of educational resources. A student in a private school might see their parents able to contribute and withdraw more from a 529 plan, easing the financial burden. However, the provision linking tax-exempt bonds to school choice could spark significant debate about the balance between promoting educational options and ensuring adequate funding for public schools. It introduces a financial incentive for states to favor school choice, which could lead to shifts in how education dollars are allocated.