Obama’s Budget Would Tax College Savings Plans
Posted on 20 January 2015
URL of the Original Posting Site: http://minutemennews.com/2015/01/obamas-budget-tax-college-savings-plans/
President Barack Obama’s budget proposal—which he will outline during his State of the Union address Tuesday night—would tax college savings plans that benefit middle-class families, raising concerns among some policy experts.
Obama’s budget includes $320 billion in tax hikes over the next decade to pay for larger child-care and education tax credits and free tuition for community college students. One of those tax increases involves eliminating some of the tax-free benefits of 529 college savings plans, which the president would replace by broadening eligibility for the American Opportunity Tax Credit (AOTC).
The 529 plans, named after that section of the Internal Revenue Code, allow families to participate in pre-paid tuition plans at some colleges and universities or invest in a savings program managed by a state’s plan or a broker. Earnings from the plans have been tax-exempt since 2001 as long as they are spent on higher education costs, but Obama’s budget would reduce that benefit.
Taxing earnings from the 529 plans could further depress the savings rate among Americans, which is already at historic lows.
Ryan Ellis with Americans for Tax Reform (ATR) said in an email that repealing tax benefits on the plans would primarily hurt middle-class families.
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