Federal Tax Day – Current,C.1,House Bill Would Expand 529 College Savings Plans,(Jan. 28, 2015)
Reps. Lynn Jenkins, R-Kan., and Ron Kind, D-Wis., on January 26 introduced legislation (HR 529) that would expand and strengthen tax-free Code Sec. 529 college savings plans. The bipartisan measure stands in stark contrast to President Obama’s proposal to end the program, which the administration outlined earlier and was referred to in the president’s State of the Union Address (TAXDAY, 2015/01/21, W.1). However, in a late-breaking development, the president, after pressure from Republicans and Democratic leaders, indicated that he would drop his proposal to end the tax break for Code Sec. 529 college savings plans.
The decision was made shortly after House Speaker John Boehner, R-Ohio, appealed to the president to drop the proposal in his budget, due out on February 2. House Democratic Leader Nancy Pelosi, D-Calif., and House Budget Committee ranking member Chris Van Hollen, D-Md. also asked the president not to include the proposal in his budget.
The bill would clarify that computers are a qualified expense for Code Sec. 529 account funds and remove all distribution aggregation requirements. The current rules were designed for when earnings were taxed to the beneficiary at distribution, according to Jenkins’ staff. However, since 2001, the tax treatment changed and Jenkins said there is no policy need for such aggregation. This would also eliminate a paperwork burden for 529 plan administrators.
In addition, the bill would permit refunds to be re-deposited without taxes or penalties within 60 days of the student withdrawing from the college due to illness or other reason. Currently, the refund would be subject to income tax on the earnings and a 10-percent penalty.
“This bill would expand 529 plans to further promote college access and eliminate barriers for middle class families to save and plan ahead,” said Jenkins. “This bipartisan, sensible legislation strengthens an extremely popular savings plan for middle-class families so that all Americans have the opportunity to send their children to the college institution of their choice.”
Since the creation of Code Sec. 529 in 1996, the savings plan has grown to nearly 12-million accounts and resulted in college savings of more than $225 billion, according to figures released by Jenkins’ staff.