Mostly it’s people with higher income who aren’t feeling the love.
Isn’t the real question how ANY family with income of $70K can put three kids through college when annual costs are $20K-$60K (and rising) every year? At what point do we address the real issue, which is the outrageous cost of four-year colleges in this country?
This won’t pass. 529s are a jumble of contributions from parents, grandparents, aunts, uncles…I would wager to guess that many owners of 529s are a lot less well off than their account balances would imply, and this will come out in the debate.
@sbjdorlo
No, you are one of the favored ones who can take advantage of both the 529 and the $2500 AOTC credits, so feel the love!
No, we only got $198 in credit last year. Can’t remember why. Also, dual-income families are getting tax breaks, not single income families like ours.
How big must a 529 be, before the distributed dividend, interest, or realized gain is of a sufficient magnitude that it would even have been taxed, if the money had instead been placed in a UTMA and were subject to the kiddie tax? I doubt that 529 accounts under about $30,000 will be affected by this proposal much, if at all.
IIRC, if it was subject to the kiddie tax, then all the income above $2,000 a year would be taxed at either the parents regular or capital gains rate. The first $1,000 would be tax free each year, the second $1,000 would be taxed at the child’s rate.
According to the article I posted above, the average value of a 529 fund is $19,774.
If the precedent is set for taxing 529 plans, will Roth IRAs be in the sight of the politicians next? No one will save for anything if that becomes the case.
Yes, encouraging people to save for college and for retirement and then reversing yourself doesn’t make sense. Some of the politicians don’t think things through.
Well, Argentina “nationalized” private pensions in 2008.
Maggpie, in addition to your post being patently untrue, it’s likely also against the TOS on this site. Just a friendly reminder. 
@sally305 what post of Maggpie are you referring to?
This is right up there with “if you like your doctor, you can keep your doctor…period!”
@adkdad not really, as any past contributions are treated as they always have been. The proposal is only for new money. So one would just have to evaluate whether it makes sense to still contribute more money. I’ve said, I like the plan the way it is (probably mostly because we took big advantage of it) but am open to the suggestion that the tax benefits (which are, after all, “expenses” to the gov’t) might be allocated differently to help a wider swath of people.
Heh, just saw a column headline on USA Today on this topic that read: “Middle-class savings like blood in the water”
Sounds about right.
And now we have a definition of rich: $250k+ income
Couple corrections. From USA Today:
Not correct, the President’s proposal is only taxing on new contributions.
Not correct on all withdrawals. The earnings in some withdrawals will show up as income on students’ tax returns, if the students are the owner of accounts.
I find it a little amusing that people act like this tax break was written into the constitution or something. It has only been available since 2001; before that, the earnings on 529 plans were taxed.
The Bloomberg article that USA Today references is interesting, as it explains why taxing savings is less politically provocative than imposing a brand new tax (like a VAT) or raising income taxes, while at the same time why it is a bad long term policy.
Anyway, as an economy we’re basically at the “eating your seed corn” stage, imo.
@scholarme. Interesting view, but I think the idea that the “government is coming after your savings” is fear-mongering. I mean, really, how much tax revenue is available to the government from the tax free savings of the US population? Roughly $130 billion is in 529 accounts (I’m doing that from memory, so I apologize if that’s wrong). If one -third of that is in capital gains, you’re talking about about $6 billion dollars of taxes foregone on capital gains, a drop in the bucket. (And again, the proposal would leave existing savings untaxed, just new contributions would be subject to tax.) I take White House proposal for what it is; no proposal that is not revenue neutral will be acceptable to Congress. So the proposal is designed to pay for itself by shifting the college saving tax subsidy from 529 accounts to the increased AOTC benefit. It’s not a money-grab by the federal government.