529 savings plans, which help families save for higher education, are only used by less than 3 percent of the U.S. population. (Photo courtesy SeniorLiving)
WASHINGTON — The House passed legislation Wednesday that would improve savings plans known as 529s, which help families pay for higher education.
The 529 plans are tax-free savings accounts that can only be used for education expenses, such as tuition, fees and books. This legislation would allow expenses to include computers, if they are used for education purposes.
In addition, this bill would allow refunds from colleges to be put back into a student’s 529 account, as long as a deposit occurs within 60 days of the refund. It would also eliminate a tax-related regulation about the aggregation of withdrawals, which was referred to as an “undue burden.”
The bill was passed by a resounding margin, 401-20.
In President Barack Obama’s State of the Union address last month, he proposed eliminating the tax-advantaged status of the 529 accounts. A week later, he backed off his proposal amid bipartisan rebukes on behalf of middle-class families.
“We want to make 529 college savings plans more consumer-friendly and reflective of the realities faced by students today,” said Rep. Lynn Jenkins, R-Kansas, and the sponsor of the bill, during the debate.
Less than 3 percent of American families have a 529 account. Families who have this account have about 25 times the financial assets of those without, according to a 2012 Government Accountability Office report.
“We’ve got to figure out a way to do a better job of increasing those savings opportunities for more families, but especially lower-income families.” said Rep. Ron Kind, D-Wis., regarding the low participation rates. “We need to think creatively on how we can democratize this.”
Rep. Danny Davis, D-Ill., supported the legislation, but said he believed it did not go far enough to bolster the ways families can save for higher education. He suggested tax credits and employee matching as avenues to do that.
“I am a bit surprised that these substantiative improvements are not included in the bill before us today, and I truly hope that Republican leadership will advance these 529 provisions,” Davis said. Those policy changes were not included.
The bill will move to the Senate for further action.
