 The president’s plan calls for funding his community college initiative by
ending a tax break for 529 college savings plan.
The 529 plans are designed for and used by “middle-income families that can’t
afford pay-as-you-go, but who aren’t eligible for need-based aid, ” said Betty
Lochner, chairwoman of the College Savings Plan Network.
Contributions to a 529 plan are not tax deductible. Withdrawals, however, are
tax-free when used for qualified college expenses, including tuition.
Another 529 expert said Obama’s proposal — which might die anyway in a
GOP-controlled Congress — would both kill the 529 plans and ultimately not pay
for more education.
“That’s because such a tax would cause contributions to 529 plans to simply dry
up,” wrote Joseph Hurley of saveforcollege.com. “Americans won’t put assets in a
529 plan if it were taxable. There can be no tax revenues when there are no
assets to be taxed.”
The 529 plans, which are named for their spot in the federal tax code, are
popular nationally and in Illinois.
Illinois has 385,000 Bright Start or Bright Directions (529) accounts with a
total value of $7.17 billion, said Gregg Rivara, spokesman for Illinois
Treasurer Michael Frerichs, who administers the program.
“Obviously education is the best predictor of employability and an educated
workforce is necessary for economic growth, and that is why Treasurer Frerichs
is a strong proponent of empowering families to save for college,” said Rivara.
The state has a 529 prepaid college savings plan called College Illinois!
available through an agency answerable to the governor, the Illinois Student
Assistance Commission.
As of the end of June 2014, it had assets of $1.17 billion and about 45,800
participants.
Neither Rivara nor a spokesman for Gov. Bruce Rauner addressed how their
respective state officials stand on President Obama’s proposal.
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Nationally, there were more than 12 million accounts
and about $245 billion under plan management as of June 2014. The
average account size is about $20,700, according to the College
Saving Plan Network, which is allied with a national state
treasurers’ organization.
Lochner points to the average fund balance, as one
indicator the 529 plans are not a tax haven for the wealthy.
“That’s not enough a year of college in most places,” she said.
But not everyone agrees.
“It’s kind of just a cash giveaway to upper-income folks,” Mark
Huelsman, a senior policy analyst at the think tank Demos, told the
Washington Post. “The president, both from a policy and a political
perspective, sees something like that and says why don’t we use some
of that to pay for the cost of college up front.”
Some conservatives suggest the president’s plan amounts to a blatant
redistribution of wealth.
Said Nicole Kaeding of the Cato Institute, “What he (the president)
is saying is, ‘The way we are going to provide free college tuition
for millions of people is by taxing the middle-class Americans who
have actually been saving for their children’s education.”
Lochner said she finds disturbing and divisive the idea of trying
divide the middle class by arbitrary income levels and then saying
who does or does not need or deserve 529 programs.
“It’s the wrong question,” she said. “Everyone — everyone — should
have the opportunity to save money for college.”
[This
article courtesy of
Watchdog.]
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