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.
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Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.