Because income for the most part has to be fairly low to receive Pell, or it could be that you have decent income, but have a lot of kids, and/or the cost of the college is very high. At any rate, your EFC, has to be low to get Pell. Given those circumstances, most people wont have a lot of discretionary income to fund a 529. No one is saying its not possible, but it is not going to be common.
@Requin
Granted, so let’s get back to the original question, would you prefer a program that gives the average account around $1500-$3000 tax break depending on how much state tax your state charges, or would you rather have a program where you get a straight $12,500 over five years toward college?
@Chesterton Everyone, whether a public employee or private employee, whether Mitt Romney or President Obama, should take full advantage of 529 plans to the fullest extent that Congress currently permits. It doesn’t mean that there should not also be a serious conversation about tax policy, and whether changes should be made. It’s your perogative not to participate in that conversation. But many other thoughtful people will.
Why do those have to be the only two choices? I like what we have now.
-529 plans to allow for long-term tax-free saving for higher education
-A tax credit of up to $2,500 per year for up to four years of undergraduate study
-A tax credit of up to $2,000 per year for other postsecondary education
n.b., Parents who have already saved substanitally in 529s and have children starting school soon already get the best of both worlds if the AOTC is enacted, since you’ll have all the benefits of the 529 for previously invested funds and may now qualify for a $2500 per year tax credit.
^^^
Let’s keep the best of both worlds for everyone (i.e., leave things the way they are).
@spayurpets #61 I would rather have a program where my kids’ education payments are funded by me (or their grandparents, other family members, etc.) from money that I have earned and saved as a matter of my personal responsibility for my family. I do not want a program where those payments are funded by robbing the rich in order to give me transfer payments or credits. It is not the function of the federal government to fund the education of the nation’s college students, much less to fund that education on a favored basis for only those who earn less than $x per year.
I don’t accept the phrasing that I “get” $12,500 toward college. I didn’t earn that, I didn’t save that, I didn’t even borrow it and obligate myself to repay it to my lender; under AOTC I’ve stolen it from Mitt Romney and Daddy Warbucks.
Yes, of course I recognize that making the appreciation in a 529 account tax-free is an indirect subsidy from the taxpayers as a whole. But as long as the tax code is being used as a blunt instrument for social engineering, by encouraging such activities as owning a home and giving to charity, I’m ok with having consuming higher education on that list of encouraged activities. As a philosophical and moral matter, I believe it is more defensible to spread out the cost of that benefit in the form of neutral favorable tax treatment for those who earn and save than to throw a refundable tax credit - i.e. a transfer payment - at a class of recipients defined only by their income.
“Robbing the rich”? Really?? When the marginal tax rate on the wealthiest is at or near the historic low??
SMH.
@MiddKid86
Um, no MiddKid, this is contradictory. Leaving it the way it is gives you a 529, but none of the tax credits you want and that the AOTC would provide.
Really? We have 529s now that provide tax free earnings for higher education. We have the AOTC now that provides up to a $2,500 yearly credit for four years of undergraduate study. We have the LLC now that provides up to a $2,000 yearly credit for an unlimited number of years of postsecondary education.
@MomCat2 Yeah. Why should Mitt Romney pay for your kid’s college?
@middkid86, I stand corrected. I make too much and I’ve just assumed that I cant qualify for AOTC so I did not know it that is so extensive. What are the income limits on the AOTC today?
@spayurpets AGI $160 (married filing joint) full, phase-out $160-180, no AOTC past $180.
I wasn’t addressing your particular situation, as I have no idea what your financial picture looks like. Plenty of people will be able to take advantage of a 529 account and still qualify for the existing tax credits.
2013 income limits for the AOTC were $180,000 MFJ and $90,000 single, HOH or qualifying widow(er). 2013 income limits for the LLC were $127,000 MFJ and $63,000 single, HOH or qualifying widow(er). I haven’t seen the 2014 limits yet and don’t know if they are indexed to inflation.
Edited to add: it looks like the 2014 income limits are the same, at least for the AOTC. The “we” in my post 69 above is a generic we, meaning the American taxpayer.
@Requin Why should MR, BG, WB and other extremely wealthy individuals help? Because they have benefitted in an outsized way from the tax policies that Congress has created. Every advantage these individuals have taken has been legal, one assumes. But the odds were tipped significantly in their favor. The bipartisan books by David Cay Johnston have been clearly illustrative of that.
MR should WANT to help, because it is the right thing to do.
“robbing the rich” to help kids go to college is what the vast majority of developed countries do. That is, they think it is worthwhile policy for college to be free/affordable/widely available.
Well, no not really. Most of them track the potential college students as early as sixth grade. Everyone else is SOL.
Now I’m annoyed that my tax dollars are paying for other people’s 529s 
Okay, so let me get this straight here, the White House proposal is basically to expand the AOTC by one year ($2500) and make it refundable to lower income families ($1500/yr) in exchange for taxing gains on future 529 contributions. That’s a lot more nuanced/modest than I thought.
The AOTC is already refundable up to $1,000. If the concern is wealthier taxpayers taking unnecessary advantage of 529 plans, why not just impose some kind of income limits for 529 account owners and/or beneficiaries?