New Bipartisan Policy Set to Expand 529 Savings to Cover Childcare Costs
- Mar 24
- 6 min read
It looks like 529 savings are about to expand, again, and this time it's set to expand into covering childcare costs, allowing parents and other family members to use 529 savings for child care costs for children under five years old at state-licensed childcare facilities. These accounts would have no cap on contributions or balances used for childcare expenses.
This is on top of what 529 savings can already be used for: today, children and adults alike can already use 529 savings for K-12 education through graduate school, private tutoring, student loan repayment, disability costs including healthcare, professional development, retirement, and more. Let's break down what this new legislation would mean, and what you can do today to take most advantage of the tax-free growth that comes with 529 savings.
Bipartisan Support for Covering Childcare Expenses with 529 Tax-Advantaged Savings
Congresswomen Kristen McDonald Rivet (MI-08) and Ashley Hinson (IA-02) have co-sponsored the bipartisan Early Education Savings Program Act. This bill is supported by both Democrats and Republicans and is set to make childcare more affordable by expanding 529 savings programs to cover child care expenses.
529 Savings for Childcare Costs
First, let's clear up the most common misconception: 529 savings are not just for children for college costs. Though Section 529 was enacted in the 1990s to help children save for higher education expenses, 529 savings have massively broadened into other major life expense categories, and both adults and children can be beneficiaries.
Think of a 529 savings account as a lifelong tax-advantaged bucket that you should consider having. Contributions are made with after-tax dollars, full stop. Money in the account gets Roth IRA-style tax treatment: every dollar of investment earnings compounds without ever being taxed. And your money in a 529 account also withdraws tax-free for qualified expenses. This new bill adds childcare costs for children under five years old to the growing list of qualified expenses.
Start Today: You Can Transfer 529 Savings for Future Children
You want money to compound tax-free as long as possible in a 529 account. It's not about timing the market; it's about the amount of time in the market. Money in a 529 account compounds tax-free, which allows it grow faster than traditional investment accounts that incurs taxes for dividend and interest income as well as capital gains tax.
A lot of people do not realize you can transfer 529 funds to future family members tax-free and penalty-free. If you don't wind up having children or needing money for your future child's expenses, you can now off-ramp 529 funds into your retirement. You can also transfer it to other family members including cousins, siblings, nephews, aunts, uncles, nieces, and more.
You Can Off-Ramp 529 Savings Into Grad School, or Now Retirement
Contributing money now into a 529 account has major advantages. It grows tax-free, and you can transfer it to future children because if you wait until that child is born, you won't have much time for the money to grow tax-free until you need it. Today, you can use 529 savings for K-12 education costs, including private tutoring outside of the home all the way to private tuition, and even SAT test prep courses and exam fees.
That means, today you can use 529 savings for a kindergartener, typically around ages five and six. That's not much time, so starting before the children is born is a great idea.
If this new bipartisan legislation passes, that means families will have less time to grow their 529 savings for childcare costs, since the legislation would allow families to use 529 savings for children under five years old.
If you wind up not having children, no worries: you can use the 529 savings for yourself or other family members. Since 2024, Americans can off-ramp 529 savings into their retirement savings, or can transfer among other family members for their education, career training, disability costs, student loans, or retirement.
A Major Win for Bipartisanship, Working Families, and the Economy
The Early Education Savings Program Act is yet another bipartisan bill that expands 529 savings usage for all Americans across all ages and income groups. Unlike a Roth, all Americans in all income groups can and should save in 529 accounts.
Bipartisan Bill
"Access to childcare is a women's issue, a family issue, and a workforce issue, and no two families have the same needs or circumstances. That is why I'm proud to help introduce bipartisan legislation to expand savings programs parents can use for childcare, while also supporting early childhood education," said Congresswoman Hinson. I'll continue working across the aisle to make childcare more affordable, flexible, and accessible for families because supporting parents strengthens our workforce and helps build a stronger economy, and community, for everyone."
This bill is the latest of a bipartisan streak of other legislation that has successfully passed. The Small Business Job Protection Act of 1996 enacted Section 529. The Economic Growth of Tax Relief Reconciliation Act of 2001 allowed 529 savings to compound and be withdrawn tax-free. The Stephen Beck Jr. Achieving a Better Life Experience (ABLE) Act allows 529 savings to be used for disability costs, including healthcare, assistive technology, and transportation costs. The 2017 Tax Cuts and Jobs Act expanded 529 plans for student loan repayment. The SECURE 2.0 Act of 2022 expanded 529 savings to roll over unused funds to a Roth IRA, tax- and penalty-free. The One Big Beautiful Bill Act (OBBBA) of 2025 expanded 529 savings for all K-12 costs for children, and for adults it expanded 529 savings usage for professional development, career training, workforce credentials, career costs like license and registration fees, and more.
The Early Education Savings Program Act looks like the next progression for 529 savings, and continues to be a bipartisan bright spot for our country's lawmakers.
Working Families Need Financial Relief From Childcare Costs
Childcare affordability remains a critical issue for the nation's workforce. The U.S. Chamber of Commerce estimates that states lose about $1 billion each year in economic productivity due to lack of affordable and accessible childcare.
The same study shows that absences and employee turnover that stems from lack of childcare can also cost employers between $400 million and $3 billion each year.
529 Benefits Add to Employee Retention and Economic Impact
529 workplace savings benefits remain a highly differentiated benefit that is under-utilized that employees don't even know that they need, since 7 in 10 Americans are unaware of 529 savings. It is a robust and versatile benefit, and with more Americans poised to use 529 savings for more categories, whether it's education, career training, disability costs, retirement, professional development, or other expenses under the growing list of qualified 529 costs. Plus, employers in multiple states can earn corporate tax credits worth $14 billion nationwide for contributing to their workers' 529 savings. Hadley makes it easy for employers to offer a 529 savings benefits program.
The Bottom Line
Save in 529 accounts sooner than later. Hadley makes it easy to pick the right one, and make one-time or recurring contributions as low as $10. For example, I like to contribute $10 each week into my 529 account. The money grows faster since it gets Roth-style treatment, meaning it grows tax-free and is withdrawn tax-free.
If this bipartisan bill doesn't pass, it's still worth opening a 529 account as the funds can still be used for children's education costs or future children's education costs. There are now multiple off-ramps for 529 savings, including allowing it to rollover to your Roth retirement savings even if you earn above the Roth income threshold that would otherwise prevent you from directly funding your Roth.
Hadley helps you find your most advantageous plan. Find your most advantageous 529 plan here. If you already have a 529 account or if you're just opening one today, you can link your existing or new 529 accounts on the Hadley app and add family and friends to save more together. You can also use Hadley at work to set up automated payroll contributions.
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