HR 464119th CongressIn Committee

Skills Investment Act of 2025

Introduced: Jan 15, 2025

Sponsor: Rep. Thompson, Glenn [R-PA-15] (R-Pennsylvania)

Standard Summary

Comprehensive overview in 1-2 paragraphs

The Skills Investment Act of 2025 would rename the existing Coverdell Education Savings Accounts (CESA) to Coverdell Lifelong Learning Accounts (CALLA) and overhaul how these accounts can be used, who can contribute, and what tax benefits are available. The bill expands eligible uses to cover a broader set of lifelong-learning and skill-development activities (including certain workforce training and education programs) and introduces new incentives for both employers and beneficiaries. Notably, it increases contribution opportunities for older contributors, imposes a higher potential tax on non-qualified withdrawals, and adds an employer tax credit and a beneficiary deduction related to CALLA contributions. The changes are phased in with a 2026 effective date for most provisions, and specific timing tied to distributions and contributions around 2025–2026. Existing CALLA-like accounts established before 2024 would be treated as CALLAs going forward.

Key Points

1Renaming and conforming changes
2- Replaces all references to “Coverdell education savings accounts” with “Coverdell lifelong learning accounts” in the Internal Revenue Code and related places.
3- Applies similar treatment across multiple code sections (530, 26(b)(2)(E), 72(e)(9), 135(c)(2)(C), 408A(e)(2)(A)(ii), 529, 877A, 4973, 4975, 6693, and related tables).
4Expanded uses and eligible expenses
5- CALLA funds can be used for “qualified educational or skill development expenses,” defined to include:
6- Training services under the Workforce Innovation and Opportunity Act (WIOA) and programs from eligible providers.
7- Career and technical education activities through eligible institutions.
8- Career services under WIOA.
9- Youth activities under WIOA.
10- Adult education and literacy activities under the Adult Education and Family Literacy Act.
11- Additional covered costs include transportation to these services, testing for enrollment or certification, and certain computer hardware/software and related services used for the eligible activities.
12Age, balance, and contribution changes
13- Age and balance rules:
14- If the beneficiary is over 30, new contributions cannot push the account balance above $10,000.
15- Contribution limits and age of eligibility:
16- The age for making contributions is increased to 70.
17- For beneficiaries over age 30, a higher annual contribution limit is introduced: $4,000 (instead of the prior level, which is $2,000 in current law).
18- If the contributor would cause the balance to exceed $10,000 after age 30, the new contribution rule applies to prevent that excess.
19- Beneficiary changes:
20- After the beneficiary reaches age 30, changing the designated beneficiary is restricted (a change can avoid treatment as a nonqualified distribution only if the old beneficiary hasn’t turned 30 and the new beneficiary otherwise meets requirements).
21Employer credit for CALLA contributions
22- New Sec. 45BB adds an Employee Educational Skills and Development Expenses credit.
23- Employers can claim a 25% credit of nonelective contributions made to an employee’s CALLA.
24- “Employee” includes most workers but excludes certain categories (e.g., certain owners, most 2% and higher-shareholders in S corporations, certain family relationships, etc.); leased employees can be treated as employees.
25- The credit is integrated with the general business credit for corporate tax purposes and applies to taxable years beginning after 2025.
26Beneficiary deduction for CALLA contributions
27- A new deduction is created for contributions to a CALLA by or on behalf of the designated beneficiary once they reach age 18.
28- The deduction amount for a given year is equal to the contributions made to the CALLA for that year.
29- Rollovers from other accounts do not qualify for this deduction.
30- Distributions are treated with an expanded tax framework (see below) that interacts with this deduction.
31Tax treatment of distributions and penalties
32- The existing 10% additional tax on early nonqualified withdrawals is increased to 20%.
33- Distributions are generally taxable; the deductible amount portion is treated as part of gross income when distributions are taken, consistent with the modified rules for 530(d).
34Effective date and transition
35- Most amendments take effect January 1, 2026.
36- Eligible expenses (CALLA distributions for qualified expenses) apply to distributions after December 31, 2025.
37- Contributions (increases and age-related changes) apply to contributions made after December 31, 2025.
38- Employer contribution credit and beneficiary deduction apply to taxable years beginning after December 31, 2025.
39- Existing accounts established before January 1, 2024 will be treated as CALLAs for purposes of the tax code.

Impact Areas

Primary group/area affected- Beneficiaries and their families who use CALLA accounts for education and skill development.- Employers who offer non-elective CALLA contributions to employees (via the new tax credit).Secondary group/area affected- Educational and workforce programs aligned with WIOA, Perkins Act, Adult Education and Family Literacy Act, and related eligible providers.- Taxpayers who contribute to CALLAs (and their broader tax planning, including deductions and tax penalties on non-qualified withdrawals).Additional impacts- Potential revenue impact to the federal government from increased deductions for beneficiaries, plus the employer 25% credit, which could reduce tax collections in exchange for incentivizing employer-sponsored CALLA contributions.- Greater flexibility for lifelong learning funding, potentially affecting higher education funding, vocational training enrollment, and adult education participation.- Administrative and compliance considerations for employers and financial institutions that manage CALLAs, given the expanded definitions of eligible expenses and updated rules on balances, ages, and beneficiary changes.

Generated by gpt-5-nano on Nov 19, 2025