Van Hollen, Lawmakers Persuade Obama to Drop Plan to Tax 529 College Savings Accts.


By Anika Reed

WASHINGTON (Jan. 28, 2015)—Rep. Chris Van Hollen, D–Kensington, joined forces with lawmakers from both parties in persuading the Obama administration to abandon its plan to tax 529 college savings accounts.

Van Hollen, ranking member of the Budget Committee, called House Minority Leader Nancy Pelosi, D–Calif. to raise objections to the taxation proposal while she flew with President Barack Obama from India to Saudi Arabia aboard Air Force One earlier this week, according to a Democratic aide familiar with the discussion who is not authorized to speak publicly.

The formal announcement of the plan’s demise was made Tuesday by White House officials.

The 529 proposal lasted a week after meeting fierce opposition from critics on both sides of the aisle, who said it defeats the purpose of helping low- and middle-income families.

House Speaker John A. Boehner, R–Ohio, and Pelosi heavily lobbied for the president and his administration to drop the tax hike.

The Obama administration planned to help offset the cost of projects to boost incomes of low- and middle-income households by taxing the 529 accounts, which administration officials said disproportionately benefit higher-income families.

This type of college savings account is designed to help families put aside money for future college costs and receive federal–and sometimes state–tax benefits.

In 2010, families with 529 plans had a median income that was nearly triple that of the median income of families without such plans and of college students’ families in general, according to a U.S. Government Accountability Office report.

The proposal came after the president’s rollout of ideas in his State of the Union address to spark a revival of “middle-class economics,” but it was quickly shot down by proponents of the 529 accounts’ tax benefits.

“[The announcement] won’t create any change in Maryland because it basically maintains the status quo,” said William E. Kirwan, Chancellor of the University System of Maryland. “I don’t think it will in any way disadvantage the current arrangements that any students have.”

Maryland has two types of 529 college savings plans: the prepaid college trust and the college investment plan.

Both offer tax-deferred growth and tax-free earnings at the federal level and in Maryland, according to the College Savings Plans of Maryland’s 2014 annual report. There is also a Maryland state income tax deduction of contributions to either or both plans of up to $2,500 annually per account, according to the report.

Bipartisan legislation provided federal tax relief for all college savings plans in 1996, which created Section 529 of the Internal Revenue Code and spurred the development of more plans nationwide. Maryland followed with state tax relief for 529 accounts in 1998.

“Any type of college savings account is a very good thing,” Kirwan said. “I have them for my grandchildren.”

For the fall 2014 semester 4,931 students claimed their prepaid college trust benefits, according to the annual report. Between July 1, 2013 and June 30, 2014, 16,433 recipients received distributions from their college investment plans totaling approximately $207 million, the report said.

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