Obama proposes scaling back benefits of 529 college savings plan

eyephone

Well-known member
"The proposal, part of a tax plan released by President Barack Obama over the weekend, would scale back a significant break that Republicans generally want to preserve--taxpayers' ability to use money earned in 529 college- savings plans on a tax-free basis."

"Currently, people can withdraw money from the 529 accounts without paying taxes on the earnings. Under the Obama plan, the gains earned on those investments would be subject to tax as they are withdrawn to pay for education expenses."

Source:http://www.nasdaq.com/article/obama...-tax-benefits-meets-opposition-20150120-01396
 
There is no penalty for withdrawing principal from 529k.

So 1) over fund a 529k, 2) wait until one day hopefully the 529k cap gains are equal to your kids expected edu expenses, and 3) withdraw the principal without penalty.

Basically no point generating incremental cap gains outside a 529k until kids 529k cap gains = expected edu expenses.

Am I missing something?
 
If he does this then we might as well do away with the 529, correct?  No need to have such a vehicle if tax implications are the same as just going to Vanguard and opening a mutual fund account for this purpose.

I wonder though if this is established by the parents with the child as the beneficiary, when the money is withdrawn who has to pay the tax, would it be based on parents tax rate or kids, big difference there.
 
"Current 529 accounts would be grandfathered under the White House plan, so withdrawals of existing funds still would be tax-free."

I guess I need to sign my child up, so I can be grandfathered.
 
i1 said:
There is no penalty for withdrawing principal from 529k.

So 1) over fund a 529k, 2) wait until one day hopefully the 529k cap gains are equal to your kids expected edu expenses, and 3) withdraw the principal without penalty.

Basically no point generating incremental cap gains outside a 529k until kids 529k cap gains = expected edu expenses.

Am I missing something?

I guess it depends on how withdraws are viewed...whether there would be separation between principal and gains.
 
i1 said:
There is no penalty for withdrawing principal from 529k.

So 1) over fund a 529k, 2) wait until one day hopefully the 529k cap gains are equal to your kids expected edu expenses, and 3) withdraw the principal without penalty.

Basically no point generating incremental cap gains outside a 529k until kids 529k cap gains = expected edu expenses.

Am I missing something?
"The gains earned on those investments would be subject to tax as they are withdrawn to pay for education expenses."

Read this excerpt. When you pay the education expenses, you will be required to pay taxes on the portions which represented gains. So there isn't a way around this tax, other than the fact that 529 plans are supposedly going to be grand-fathered in. I guess I got to finally get off my butt and open mine. 
 
There's a big problem with student loan debt in this country.  Senior citizens owe $18 billion dollars in student loan debt as of 9.10.14. according to the GAO. (Is this collectible? Probably not)

So there is a 529 plan to help families pay for college and Obama wanted to tax that.
 
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