This is a good summary of what Obama is proposing:
That is the whole point of the program. Lovely when the govt changes the rules in the middle of the game to punish those who have been doing the right thing by saving for the future.
Oh, that would make me very mad.
my understanding that it would only apply to NEW contributions. So it’s fair to say it’s not changing the rules for past money, only for the future.
It seems in keeping with the whole theme of financial aid: penalize savers, reward the non-savers.
We don’t have a 529 but if you have to pay taxes on it then what’s the point of having one?
Right, and for someone on the edge of receiving a small Pell grant, a prior year 529 withdrawal with taxable earnings could be the tipping point to NO Pell, or other income-based aid!
As Donna states, it would be for future contributions, not for what is in the plan. Less than 5% of the population even has 529s and they tend to be families making 6 figurees. Very few PELL folks with 529s. The whole idea is to benefit more people with the new plans, not take care of every contingency, and to focus on lower income and middle class, however that might be defined, with upper incomes being taxed more for the most part.
I’m not impressed with his ideas at all.
Memo To Obama: Middle Class Families Use 529 College Savings Plans
See Report says richest 1% will control most wealth by 2016
The President should go after this 1%, not the families making low 6 figures.
My feeling is that yes, 529s are mostly used by “affluent” families, as 4kidsdad says, say low 6 figures. I don’t think this is where the president should be looking for more revenue. After all, this is a “working” class (as opposed to “investor” class) that already pays high marginal tax rates and is often hit by the alternative minimum tax. I don’t have a dog in this fight, as we are done contributing, but I think this is a poor policy. Money invested for the sole purpose of education should be more favorably treated than other uses (fancy cars, second homes, etc. etc. etc.)
The problem is that there is not enough money to make enough difference going after that 1% or even 3%. Also, those in such income categories often have many other alternatives, and boxing in those taxes is very difficult. Not to mention the fact that one also has to take into account what upper income folks do when they decide to cut their expenses–it usually means cutting something of direct impact to those in lower income brackets. So it’s not so simple.
I’ve seen variation figures as to who is using the 529s and don’t know what the breakdowns are, but those who are barely making it do not tend to be putting away college money. Heck, most middle class folks are not doing this,nor even those considered upper income these days. A lot of fly by the seat of one’s pants college funding. So though I don’t support Obama’s move in doing this, as it is an encouragement to save, something I am not seeing enough happening in this country, I can also see why those actually using 529s may not be what is considered middle class for the most part.
The community college proposal is one that upset me greatly. Yes, money needs to be brought into that system but not that way. If I were Queen for a day…, but I’m not.
How much of this he will be able to get through both Senate and House controlled by Republicans, i don’t think will be much. And I am glad. I’m actually afraid they’ll let it go through to get the revenues and point fingers to the Democrats as their idea when it comes to the next presidential elections. Otherwise, I don’t think this will happen anyways, for the most part.
That’s cuz only rich people have 529’s.
“Savings” are added to FAFSA EFC at a rate of up to 5.6%
Savers are far and away better off than non-savers. Always.
If the earnings on 529s will be taxed, there is absolutely no point to saving money in a 529 account!
I really object to the statement that only “rich people” have 529 accounts or perhaps I should say that I guess it depends on how you define rich. Yes, I have 2 children and have a 529 account for each child. In order to do that, however, I am driving a 1997 Toyota, my husband is driving a 2002 Subaru, neither of our children had a car in high school, and we haven’t taken a family vacation in 4 years. We made sacrifices so that we would have money to put in their 529–it doesn’t mean we are rich!?!
I agree - three 15 year old cars with 170k-215k miles each, no vacations in 20 years, 3 kids had 529 accounts (just under asset protection allowance) one got some Pell for two years when 2 were in college simultaneously, zero non-retirement savings. Only rich people have 529 and people with 529 rarely get Pell?
Ultimately I think this will hurt the middle class more than the “rich”. The rich will have other means to shield income. I think for the middle class this will become just a disincentive to save.
I think that was sarcasm (am I right, @mom2collegekids?)
I know it made me lol, anyway.
The whole 1% thing makes me roll my eyes. These are people, like us, who will react to any changes by protecting themselves, and they have the resources to do so.
This is why it’s inevitably the actual middle class who gets hit by rules aimed at the 1% - all we do is follow rules & recs the best we can only to have the rug pulled out from under us again and again.
It all comes down to what is defined as middle class. What is considered rich.
“rich” is someone who makes more than you do.