If you are a parent or grandparent using a 529 plan to save for a child’s college expenses, your President proposes to take away the significant value of these plans. Simply put, upon withdrawal of the funds, the earnings would be taxable as they were before 2001.
This Administration prefers to reward through tax credits at the expense of hard working middle and upper middle-class families trying to pay their own way. There is little help available for families in this category and instead of encouraging responsibility, he does the opposite.
One has to wonder why the focus is on “free” education and tax credits for some, but there is no focus on the real problem; the outrageous cost of attending college.
Limit upside-down education savings incentives and consolidate them into a single benefit. The President’s plan would consolidate education savings incentives into one vehicle and redirect the savings into the better targeted AOTC. Specifically, the President’s plan will roll back expanded tax cuts for 529 education savings plans that were enacted in 2001 for new contributions, and – like Chairman Camp’s tax reform plan – repeal tax incentives going forward for the much smaller Coverdell education savings program.
From the WSJ 1-22-15
“As he limits Coverdell and 529 plans, Mr. Obama is touting a tax credit of up to $2,500 per year for five years, which should provide most of one year at a state university. He’s also continuing to pitch low interest rates and easy forgiveness for taxpayer-subsidized student loans. And he wants to cut the federal tax on those who have loans forgiven. So there’s an added tax incentive to avoid repayment to com-plement his tax hike on the suckers who try to pay for college themselves.”