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The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on Jan 5, 2022.
Tax Free Education Act of 2021
This bill permits tax-free distributions of up to $5,250 from 401(k) plans for qualified higher and elementary and secondary education expenses and penalty-free withdrawals from individual retirement accounts (IRAs) for student loan expenses.
The bill also excludes from gross income, for income tax purposes, distributions up to $5,250 from employer-sponsored student loan and tuition payment plans. It repeals the limitation on the deduction of interest on student loans and increases from $15,000 to $25,000 (adjusted for inflation) the maximum contribution amounts for certain tax-preferred retirement plans.
The bill allows employees an election to treat contributions to a 401(k) plan as Roth contributions (thus exempting withdrawals from such plans from tax at retirement).
Finally, the bill allows individual taxpayers a new tax deduction for their qualified higher and elementary and secondary education expenses.