Families who hold 529 college savings plans are much happier today with the announcement by the White House that the plans will not change. Last week President Obama announced a plan to simplify the tax code and help the middle class. One piece of the plan was to change the tax benefits of 529 plans. 529 plans have allowed families to make contribution that grow tax-free and withdraw money from the plans without paying capital gains taxes. After many critics came forward, including families and lawmakers from both parties, the White House said the proposal would not be part of the president’s new budget.
According to a White House official, “Given it has become such a distraction, we’re not going to ask Congress to pass the 529 provision so that they can instead focus on delivering a larger package of education tax relief that has bipartisan support, as well as the president’s broader package of tax relief for child care and working families.” The proposal was believed to be one of the ways President Obama planned to pay for his educational proposals he discussed in the State of the Union address on Jan. 20. However, the White House official said the administration can still achieve the President’s proposals by closing “trust fund loopholes” for wealthier Americans.
The announcement from the White House came one day after Congresswoman Lynn Jenkins (R-KS) and Congressman Ron Kind (D-WI) introduced H.R. 529. The bill would “expand, modernize, and strengthen tax-free 529 college savings plans.” In addition to keeping the tax benefits, the bill would makes three improvements to 529 Saving Plans. The improvements would make computers a qualified expenses, eliminate “unneeded” paperwork, and allows for re-deposit or refunds without taxes or penalties.
The change also came after multiple lawmakers expressed concerns over the proposal. House Speaker John Boehner (R-OH) demanded President Obama to withdraw the proposal from the budget “for the sake of middle-class families.” Leading democratic leaders also had concerns about the proposal, including House Minority Leader Nancy Pelosi (D-CA) and ranking member of the Budget Committee Chris Van Hollen (D-MD).
In a statement, House Speaker John Boehner said, “I’m glad President Obama has decided to listen to American people and withdraw his tax hike on college savings.” He also urged the President to support Rep. Jenkin’s bill to strength 529 college saving plans.