Obama Proposes Changes to 529 College Savings Plans
President Obama has recently proposed his plans for the 529 College Saving Plans. These plans, which millions of families depend on, would require those who make use of them to come up with a whole new strategy when it comes to college savings.
These proposed changes, which are in the hopes of simplifying the tax codes to provide much needed assistance to families belonging in the middle class, will involve removing one of the biggest attractions to the 529 College Savings Plan. This benefit that we are referring to is the tax-free withdrawal of the money. In other words, families who make use of the savings plans would have to pay tax whenever they withdraw money.
Most of the accounts that are part of the 529 College Savings Plans are controlled by the states. People who use these plans used to be allowed to make their contributions and grow the money without paying for tax. In addition, they can also retrieve money tax-free, as long as the uses will only be for education-related expenses. State income tax deductions were also provided by many states for these contributions.
The founder of SavingforCollege.com Joe Hurley said in a statement that he “Was very surprised by the Obama 529 proposal because in many ways it is anti-middle class for families trying to afford college.”” He added that “So much of the emphasis in the Obama administration has been pro-middle class.”
However, the 529 College Saving Plans, according to experts, are actually benefitting families who already have the financial capabilities to save. Over 12 million of these accounts are part of the circulation, and have $217 billion in them.
If the President’s proposed changes were to be implemented, financial experts say that they would have a hard time getting through the Republican-controlled congress. In addition, those who are trying to save would be discouraged to utilize the savings plans since they would already be taxed like ordinary income.