WASHINGTON – Sens. Chuck Grassley (R-Iowa), Bob Casey (D-Penn.), Richard Burr (R-N.C.), Mark Warner (D.Va.), Pat Roberts (R-Kan.) and Ben Cardin (D-Md.) today introduced legislation to enhance the already successful Section 529 college savings plans.
“These reforms will make it even more appealing for parents to use 529 college savings plans,” Grassley said. “The additions give more flexibility for using the tax-free savings. The more flexibility, the more people use something like this. The bill also sends the message to families that Congress supports this program and will fight efforts to get rid of it.”
“529s are a proven method to help middle class families save for their children’s college education,” Casey said. “This bipartisan effort will bring will make commonsense changes to 529s to ensure that they continue to be a vehicle to advance the dreams of families across Pennsylvania and the nation.”
“These college savings accounts are an important tool for parents investing in their children’s future,” Burr said. “Our bill will allow some additional flexibility to help these accounts administratively function better. I hope that my colleagues will swiftly pass this commonsense, bipartisan legislation after the President’s recent attempt to kill this very popular program.”
“529 plans have been an important part of helping Virginia families finance their children’s educations,” Warner said. “This bipartisan bill will strengthen the ability of Virginians to save for college.”
“We need to do everything we can to encourage families to plan and save for the high cost of a college education,” Roberts said. “This legislation builds on the sound model of the Section 529 plans, providing families flexibility in how to save, and reducing the need to borrow.”
“We need to do all we can to make a college education more affordable,” Cardin said. “These small improvements will make a huge difference in how middle income families can save for educational expenses. We’re clarifying the rules and adding flexibility where it would be most helpful.”
The bill builds on improvements to 529 college savings plans enacted in 2001 and 2006 under Grassley’s leadership on the Finance Committee and with broad bipartisan, bicameral support. The changes first made spending from the plans tax-free as long as the money was used for college and associated expenses and then made the tax-free provision permanent.
The new bill has three main provisions. The first provision recognizes the reality that in today’s world, a computer is just as much a necessary educational expense as a required class textbook. As such, this bill allows 529 funds to purchase a computer on the same tax-favorable basis as other required materials.
The second provision eliminates an outdated and unnecessary aggregation rule that increases paperwork and costs on plan administrators.
The third provision provides tax and penalty relief in instances where a student may have to withdraw from school for illness or other reasons. Under current law, any refunds from the college are subject to immediate taxation and a 10 percent tax penalty. This provision eliminates this tax and penalty if the refund is redeposited in a 529 account. This permits a family to set the refund aside to pay for the student’s education should he or she be able to return to college or to use it for another family member.
The 2001 and 2006 changes greatly increased the popularity of 529 plans, and the new bill has the potential to attract even more families, the senators said.
Various studies and statistics suggest that 529 plans are largely held by middle income families, despite representations that the plans largely benefit high income taxpayers.
For College Savings Iowa, $17,878 is the average account balance, $133 is the average amount contributed via automatic payments, and $25 is the minimum to open an account or contribute.