Washington

The current tax-free status of withdrawals from college savings plans would be made permanent under bipartisan legislation introduced earlier this month in the House.

Currently, the tax-free status of withdrawals expires in 2010. Under the legislation introduced by Reps. Earl Pomeroy, D-N.D., and Melissa Hart, R-Pa., that status would be made permanent under the Tax Code.

Section 529 of the Tax Code covers prepaid tuition plans and savings plans. The legislation proposed by the two congressmen, the College 529 InvEST (Investment in Education Savings for Tomorrow) Act would make the current tax-free and user-friendly administrative rules permanent.

“The time to make Section 529 tax-exemption permanent is now,” said Pomeroy, a former North Dakota insurance commissioner. “Families are putting aside savings today and are looking forward 5 or 10 or 15 years to a time when they can use the funds to pay for college. This legislation will assist families in planning long-term savings strategies to help fund their children’s education.”

More than 7 million children are enrolled in 529 plans, representing more than $67 billion in funds dedicated to their future college costs, according to Hart. The current tax-free and administratively simplified provisions were established as part of the tax reduction act of 2001. It was retroactive effective Jan. 1, 2001, and is set to expire Dec. 31, 2010.

Currently, under law the tax-free status of withdrawals from 529 college savings plans expires in 2010.