The Senate Finance Committee plans to mark up on Wednesday S. 335, which modernizes 529 college savings plan rules in three ways, including designating computers as a qualified educational expense.
The Senate bill is companion legislation to H.R. 529, which passed the House in late February.
Senate Finance Committee Chairman Orrin Hatch, R-Utah, said the markup “comes at a time when the high cost of education is creating a burden for many of our nation’s young people.”
The college savings plans, Hatch said, “have a proven track record of helping more families save for college and invest in their children’s future.” The legislation, “which has garnered bipartisan support, will build upon this success and expands the use of this important savings tool. I am pleased there is strong support on the committee to promote savings through the tax code and look forward to a productive markup of this common-sense bill.”
Joe Hurley, CEO of SavingforCollege.com, told ThinkAdvisor in an email that the Senate markup of S. 335 is “good news,” adding that if the Senate passes the bill, it would “likely get signed into law.”
The Financial Services Institute applauded Senate consideration of the bill as well, stating Tuesday that by clarifying that computers are qualified educational expenses, S. 335 would allow families “to use their savings to purchase an essential tool for today’s college student, thus reducing the burden being placed on a family’s pocketbook as a child begins his/her college experience.”
The measure would also remove distribution aggregation requirements, which mandate that gains from multiple 529 plan accounts with the same holder and beneficiary in the same state be aggregated for tax purposes. The requirements are a holdover from before the 2001 Bush tax cuts, which made plan withdrawals tax free when used for qualified expenses.
That provision would “modernize the treatment of 529 accounts to account for changes that have occurred to the tax code since the creation of the 529 College Savings Accounts, thus simplifying the 529 process and reducing paperwork burdens,” FSI president and CEO Dale Brown said in the statement.
Also, by permitting the redeposit of refunds from colleges without taxes or penalties, S. 335 “removes the current financial penalty that students and families are faced with when a student is forced to unexpectedly drop out from school, be it for medical, personal, family or other reasons.”
Removing this penalty will help many American families that may be facing a hardship, and make it possible for students to access the full amount of those funds when they resume their studies, FSI says.
The three “common-sense changes” to the 529 plans, FSI adds, “will encourage more Americans to begin taking advantage of this powerful savings vehicle, thus helping to ease the financial hurdles that many families face when their children are ready to pursue higher education.”
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