New Bipartisan Bill Would Let 529 Plans Pay Up to $35,000 Toward a First Home

Senators Jon Husted (R-OH) and Michael Bennet (D-CO) have introduced the First-Time Home Buyer Empowerment Act (S. 5227), the Senate version of a House bill (H.R. 7468). The bills would let beneficiaries of long-held 529 accounts withdraw up to $35,000 tax-free to buy their first house, something the 529 qualified expense rules don't allow today.

Under current law, spending 529 money on a house means income taxes plus a 10% penalty on the earnings portion of the withdrawal, as our reporting on using a 529 plan to buy your kid a house lays out.

The only current way to "get money out" of overfunded 529 plan accounts is the SECURE 2.0 provision that lets beneficiaries roll up to $35,000 from a 15-year-old 529 into a Roth IRA.

Why It Matters

Fear of overfunding is the top reason families hold back on 529 contributions, and the Roth IRA rollover option helped push 529 balances to a record in 2025.

This bill would add a second exit ramp (a down payment) continuing a pattern of Congress widening what 529s can do, from K-12 tuition to student loan repayment.

The Details

The mechanics mirror the 529-to-Roth IRA rollover rules:

• The 529 account must have been maintained for at least 15 years.
• Contributions made in the last five years (and their earnings) don't count.
• The money must be used within 60 days to buy a principal residence for the account's beneficiary, who must be a first-time homebuyer.
• The $35,000 cap is a combined lifetime limit shared with the Roth IRA rollover. Every dollar rolled into a Roth reduces what can go toward a home, and vice versa.
• If the purchase falls through, savers get 120 days to put the money back into a 529 or ABLE account without penalty.
• Sell the home or stop living in it within five years, and the tax benefit is recaptured, reduced by 20% for each full year of ownership.

There are currently differences between the House and Senate bills though. The 15-year clock applies to an account maintained under "one or more" 529 plans, so a rollover from one state's plan to another doesn't restart it. And the tax break only applies to the original designated beneficiary or a successor in the same or a younger generation, so account owners can still change beneficiaries, within limits.

How This Connects

For the graduates most likely to benefit, the down payment problem usually arrives while they're still buying a home with student loans on the balance sheet. And for families deciding whether to keep leftover 529 money invested for grandchildren (the dynasty 529 strategy) a home-purchase option changes the math on how much flexibility those dollars really have.

The House bill has picked up 10 sponsors, including two Democrats, but Bennet is the only backer on a tax-writing committee (Senate Finance).

With Congress having already passed housing legislation this year, another tax vehicle before the end of the session is uncertain. Still, the bill is bipartisan in both chambers and builds on a rollover provision that 529 savings statistics show families are already using.

Common Questions

Can I use 529 money to buy my first home?

Not yet, at least not tax-free. Under current law, withdrawing 529 funds for a home purchase is a non-qualified distribution, so the earnings are taxed as income and hit with a 10% penalty. The First-Time Home Buyer Empowerment Act would change that by allowing up to $35,000 in tax-free 529 withdrawals for a first-home purchase, but it is a proposal, not the law.

Has the First-Time Home Buyer Empowerment Act become law?

No. The bill was introduced in the Senate as S. 5227 by Senators Jon Husted (R-OH) and Michael Bennet (D-CO), with a House companion, H.R. 7468, that has 10 sponsors including two Democrats. It has bipartisan support and Bennet sits on the Finance Committee, but as of August 2026 it has not passed either chamber, and passage before the session ends is uncertain. Nothing changes for 529 owners unless it is signed into law.

Who would qualify to use 529 money toward a first home under the proposed bill?

The beneficiary would need to be a first-time homebuyer, and the 529 account would need to have been open for at least 15 years. Contributions made in the last five years, along with their earnings, would not count. The home purchase would have to close within 60 days of the withdrawal. If the deal falls through, the money could go back into a 529 or ABLE account within 120 days without tax or penalty.

Would the proposed $35,000 homebuyer limit be separate from the 529-to-Roth IRA rollover limit?

No. The bill sets a shared $35,000 lifetime cap covering both uses. Every dollar withdrawn for a first home reduces the amount that can later be rolled into a Roth IRA under SECURE 2.0, and vice versa. The 15-year account age and five-year contribution lookback rules mirror the existing Roth rollover requirements, so the proposal is best understood as a second exit for overfunded 529s, not an additional one.

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