House Passes Legislation to Protect and to Modernize 529 College Savings Plans

Press Release

Today the U.S. House of Representatives passed HR 529, bi-partisan legislation to support hard working families as they plan ahead and save for the ever-increasing costs of their kids college education.

"Unlike President Obama, I am committed to helping the thousands of families in North Dakota and nearly 12 million families across this country save for their children's college education tax-free. Democrats and Republicans should be able to agree upon this simple theory: we must do all we can to help working families save now for the costs of their kids' college in the future. I hope the Senate will quickly act on this legislation so we can provide every parent in America with tools and incentives to save a little each day and help their kids achieve their educational dreams and graduate from college." said Cramer.

HR 529 makes three important improvements to 529 College Savings Plans and keeps them tax free:

Allows payments from 529 plans to be used for the purchase of computer or peripheral equipment, computer software, or internet access while an individual is enrolled at an educational institution

Eliminates a burdensome requirement that requires distributions from a 529 plan to be aggregated for purposes of determining the amount includible in a taxpayer's income

Allows taxpayers to re-deposit refunds from educational institutions tax-free, provided that it occurs within 60 days of the refund and does not exceed the refund amount.

Background Information on 529 College Savings Plans

Enacted in the 107th Congress, The Economic Growth and Tax Relief Reconciliation Act of 2001 changed the tax treatment of section 529 college savings plans to exempt qualified distributions from taxation. This treatment was eventually made permanent with the passage of the Pension Protection Act of 2006. As a result of the favorable tax status afforded to section 529 plans, they have become a frequently used method of saving for college. The College Savings Plan Network reported in 2014 that there were approximately 11.83 million 529 accounts totaling $244.5 billion in total assets. Additionally, the average size of a 529 account has continued to grow, reaching an all-time high of $20,671 in mid-2014. Moreover, states that sponsor 529 plans have taken steps to ensure that plans are used by families of all economic backgrounds, including setting low minimum contribution levels.

President Obama's FY 2016 Budget originally proposed to tax certain future distributions made from 529 college savings plans. This proposal was ultimately omitted from President Obama's final budget proposal after strong bi-partisan opposition from parents and Members of Congress .

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