October 07, 2005

Crapo: College Savings Tax Advantage Should Stay

Tax-free withdrawal status of 529 plan set to expire in 2010

Washington, DC â?? Students and parents saving for college will get some assistance under legislation co-sponsored by Idaho Senator Mike Crapo today. The measure, the College 529 InvEST Act of 2005 (S. 1112), would make the tax benefits of section 529 college savings plans permanent. A 529 College Savings plan is a state-sponsored, tax-advantaged savings plan for higher education. Under changes made to tax law in 2001, education-related withdrawals from these accounts are tax-free. Prior to 2001, withdrawals were taxed at the studentâ??s rate. The InvEST Act will prevent the preferential tax treatment of these accounts from expiring.â??Families need all the help they can get to pay for college,â?? said Crapo, a member of the Senate Finance Committee. â??And this legislation will help them to plan and save for their childrenâ??s future. Since Congress made withdrawals for higher education tax-free, the participation in 529 plans has been growing steadily, which means more of us are using this plan to help with college costs. We ought to do all we can to encourage higher education and to help cover the costs of it.â??In 2000, contributions to 529 plans totaled about $2.6 billion. After the 2001 change, that amount exploded to $14 billion in 2001; some estimates place the investment in 529 plans at more than $350 billion by 2010, when the tax-free withdrawal status is set to expire.The legislation, which was introduced by Finance Committee Chairman Charles Grassley (R-Iowa) and Ranking Member Max Baucus (D-Montana) in May 2005, has already garnered significant support from other Senators with 42 co-sponsors. It is also supported by the National Association of State Treasurers, the College Savings Foundation and investments organizations like TIAA-CREF, the Vanguard Group, Fidelity Investments, Merrill Lynch, and American Century, as well as many major mutual fund companies.