Note: since writing this the White House has said it won’t pursue the idea of taxing 529 plans, but the concern over such ideas is still valid in concept.
If you think a upper middle-class family has it easier paying for college than a lower middle class family, you are wrong.
At the low end of the spectrum there are more grants, scholarships, work programs and other benefits, especially for well qualified students. In fact, my experience was you get a better deal at private colleges.
If you are in the upper ranges of middle-income (what some politicians laughingly now call wealthy), you are pretty much on your own. What is easier is borrowing more money and consuming your assets to pay for college as opposed to the “free” assistance available at lower income levels. And by the way, the greater burden you place on this upper middle-income group, the less it has to spend in the economy. Who can stimulate spending more, the family earning $150,000 or the family earning $50,000?
Don’t get me wrong, I’m not crying the blues for the “wealthy” middle class, they should pay their way as much as possible, but why take away the minor advantages of saving for college such as the President proposes? Why make it harder for those who try the most to carry their own weight? The system is already rigged against the prudent. Families that live for today, accumulate debt, and have no savings have a far better chance at tuition assistance than a prudent family with the same income that has saved, invested and accumulated assets.
My experience with four children attending college over ten years beginning when I was age 45 required me to first use all the assets I had accumulated as of that point, take a home equity loan, take loans from my 401k plan, start a home based side business and finally remortgage my home. The children worked at school and/or during the summers.
That journey started in 1988 and the mortgage was paid off in 2013. Should I have gotten more aid, it would have been nice, but probably not. We survived and when the ten years were over we started accumulating assets again. During those times money was tight so we didn’t spend on frills, but that’s fine too.
So I ask again, why make it harder for American families willing and able to work for what they want to do so? There are no tax benefits to a 529 plan unless you take the initiative to use it. Even then it depends on the success of the risk you take in investing. The ultimate burden of this proposed change on the taxation of 529 college saving plans will fall on the students of middle-class families … and while they may be better off than some Americans, they are not wealthy.
This is an administration made up of naive, short-sighted ideology driven boobs. They are incapable of looking at the total big picture of anything.
P.S. The President has already taken advantage of the current 529 rules by placing five years of maximum gift contributions in at one time for his children. Smart move Mr President. 😎
From Forbes blog:
“You see, back in 2007, Barack and Michelle Obama made a stunning $240,000 contribution to the 529 plans of their two daughters. There’s a special provision in 529 tax rules that allow for a “jumbo” contribution in exchange for not gifting any more money to your kids for the next five years. The Obamas (wisely) took advantage of this–you can see the actual tax form reporting here.
This is odd, considering some of the nasty things the White House has said about 529 plans in recent days. Administration officials have called 529 plans “inefficient,” that 80% of the benefits accrue to those making more than $250,000 per year, and that 529 plans should effectively be repealed in order to plus up an education tax credit. Obama Administration mouthpiece Slate went so far as to call de facto 529 repeal “a great idea.”
In fact, the College Savings Foundation–which knows a thing or two about the 529 industry–says that 70% of families which own a 529 plan make less than $150,000 per year, and almost 95% of families make less than $250,000 per year (note that this is the Obama Administration’s preferred dividing line to mark off the “middle class”). The average account balance in these 12 million 529 plans is just under $21,000.”
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