Parents Losing College Savings Plans?

In a State of the Union fact sheet, President Barack Obama proposes rolling back the tax advantages of College Savings 529 plans for new contributions. The way 529 plans work now is that you put away aftertax money into an account where it grows tax free and comes out tax free when you use it for college or graduate school expenses. President Obama’s proposal is to impose income tax on the earnings when you take out money, negating the driving reason to set up an account.

A lot of families are making the effort to save for college in 529 plans. There are 12 million accounts open with an average of $20,000 in each. Close to 10% of accounts are owned by households with annual income below $50,000, and over 70% of accounts are owned by households with annual income below $150,000, according to the College Savings Foundation, which has a strongly worded statement against the tax hike proposal here.

“Taxing college savings is detrimental and will have a chilling and resounding effect on the future of college savings, leaving families with an even greater reliance on student loan debt, which is currently at $1.3 trillion,” warns Betty Lochner, chair of the College Savings Plans Network if the proposal were to become law.

When 529 plans were created in 1996, earnings were tax deferred–taxed to the beneficiary at their tax rate at the time of distribution. In 2001, Congress instituted the current tax advantages and made them “permanent” in the Pension Protection Act of 2006. Savings in 529 plans spiked after those two tax events, says Lochner.

For details on 529 Plans (click here)

Source:  Forbes

******

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.