On April 29, the US Senate Finance Committee unanimously passed a markup of legislation to expend 529 college savings accounts, whose tax-free distributions president Barak Obama had previously tried to end.
A 529 plan is operated by an educational institution to make it easier to save for college and other post-secondary training for a designated beneficiary, such as child or grandchild. While contributions are not deductible, earning on savings are not subject to tax when used for the designated beneficiary’s qualified education expenses, such as on tuition, fees, books, and room and board.
Following President Obama’s attempt to curtail their use ahead of January’s State of the Union address, on the grounds that they benefit only wealthier Americans, the House of Representatives passed Bipartisan legislation in February this year to instead expand tax-Free 529 college savings accounts by a large Bipartisan majority.
Opponents to their elimination have argued that 529 accounts are popular among middle-class families. Since their creation in 1996. they have resulted in college savings of more than USD 247bn, with the average account size calculated at almost USD20’500 as of the end of 2014.
At the revenue cost of only USD51m over the years, the Bill would allow students to use the savings for computers, eliminate an “outdated and unnecessary” distribution aggregation rule, and allow taxpayers to re-deposit refunds from colleges without taxes penalties.
These reforms will make it even more appealing for parents to use 529 college savings plans. The bill’s lead sponsor, chuck Grassley (R –Iowa) said ”the additions give more flexibility for using the Tax-Free savings. The more flexibility, the more people use something like this”. The House passed its version of the bill with strong support. The full Senate should follow suit. These are common sense changes to the law that can make it that much more affordable for students to receive an education. Committee Chairman Orrin Hatch ( R-Utah) added “That’s Why the bill has generated overwhelming bipartisan support”.
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