By Joan Marshall
Executive Director, College Savings Plans of MarylandMay 22, 2014
A couple of months ago in this space, we talked about the benefits of HR 4333, a relatively new bill in Congress that would add several new features to 529 plans to make them easier to use and more flexible, including expanding the number of investment changes from one to four times per year; adding computers as a qualified higher education expense, etc.
However, we also want to remember that an earlier bill was filed in this session of Congress – conveniently assigned the bill number of HR 529 – that would add two important features to 529 plans to make these plans even more appealing to working families across the country. These features include:
- An extension of the current SAVERs tax credit – Originally designed for retirement savings – this provision would expand the SAVERs credit to include saving for college in 529 plans. The SAVERs credit currently allows individuals to claim a credit for 50%, 20% or 10% of the first $2,000 they contribute during the year to a retirement account, with the percentage determined by the individual’s adjusted gross income and tax filing status. In 2013, the maximum adjusted gross income for Saver tax credit eligibility is $59,000 for a married couple filing jointly, $44,250 for a head of household, and $29,500 for all other taxpayers. HR 529 would retain the $2,000 limit, but would apply it to 529 plan savings and/or retirement savings.
- An employer match feature – This provision would allow employers to match employee contributions to a 529 plan – up to $600 per year or $50 per month – and not have those funds be taxed as income to the employee. This concept is modeled after current law that allows employers to pay for employees’ higher education expenses (up to a limit of $5,250 per year) and also not have those funds be taxed as income to the employee. This feature has several advantages for families. First, there is the obvious value of the matching funds provided by employers who choose to participate. Second, employers that decide to provide a match are then more likely to provide employee education about 529 plans in their workplace. This would help many more working families to learn the facts about the importance of saving for college and the advantages of 529 plans. It would be a “win” for employers to choose to offer the match by maintaining a competitive edge in their employee benefits packages and a “win” for employees who receive the match – or at least learn more about saving for college with 529 plans. And, for those who say this is a benefit that would only be open to those employees who have young children, let’s remember that 529 plans can be used by grandparents for their grandchildren, aunts and uncles for their nieces and nephews, godparents for their godchildren, and even for employees who save for their own future higher education – regardless of their age!
If you share our support of these common sense provisions to further enhance the appeal of saving for college with 529 plans, please encourage your member of Congress to sign on as a co-sponsor of HR 529. If you don’t know your Representative, you can easily locate him or her and send a brief email asking your Representative to sign on as a co-sponsor of HR 529. Any personal experiences or anecdotes are always helpful and appreciated as well!