As then-chairman of the Senate Finance Committee, with jurisdiction over tax policy, Sen. Chuck Grassley of Iowa improved key education savings provisions in the 2001 tax law, including one that encourages parents, grandparents and other family members to contribute to state-run college savings vehicles, called Section 529 plans. Previously, 529 plans permitted investment earnings to build-up tax-free but were subject to taxation upon distribution. The 2001 law enhanced the federal tax benefit by exempting distributions from taxation as long as they are used for qualified college expenses. The tax-free treatment of distributions from 529 plans in 2006 was made permanent in the federal tax code at Grassley’s initiative as chairman. As part of his State of the Union message, President Obama proposed eliminating the tax-free distribution. Now, the President will drop his proposal after “facing angry reprisals from parents and from lawmakers of both parties,” according to The New York Times. Grassley made the following comment on the President’s reversal.
“When the President described wealthy people as the primary beneficiaries of this program, my staff checked on the latest statistics from the Iowa treasurer’s office for Iowa’s 529 plan. There’s no income information available but the stats are: $17,878 is the average account balance in College Savings Iowa. $133 is the average amount contributed via automatic payments. $25 is the minimum to open an account or contribute. The statistics suggest that Iowa’s program is used by parents and grandparents who are making an effort to set aside money to save for their children and grandchildren’s education. It didn’t make sense to attack a program that encourages savings. The tax code encourages all kinds of behavior, and saving for college is usually something everybody supports. The President’s dropping his misguided plan is a victory for common sense.”
-30-