What you need to know about President Obama's 529 tax proposal

http://www.savingforcollege.com/articles/what-you-need-to-know-about-president-obama-s-529-tax-proposal-715

If the President’s idea to take away the federal tax benefits of 529 plans has left you confused or even angry, you’re not alone. According to Savingforcollege.com’s Annual College Savings Survey, 59% of people who intend to open a 529 plan say that Federal Tax Benefits are one of the top three reasons for doing so.

The President claims that 529 plans only help the wealthy, but we couldn’t disagree more. Many hard-working families are currently taking advantage of these benefits to help ensure a solid future for their children. In fact, we found that 73 percent Savingforcollege.com visitors that were planning to open a 529 account in the next 12 months had household incomes less than $150,000.

As opinions on the proposal circulate through the various media channels, we ask that families remember that it is only just that - a proposal. Many experts, including Savingforcollege.com founder Joseph Hurley, believe that it is unlikely that the plan will pass Congress. With over 3 million visitors each year, Savingforcollege.com continues to be the leading source of objective information on 529 plans. We believe they are best way to save for college today, and just like you we want to keep it that way!

What you need to know:

Proposed changes to federal tax benefits
A 529 plan is an investment account that works like a Roth IRA. You deposit after-tax money, and any earnings will grow federal tax-free and you won’t pay income tax when you withdraw as long as the money is spent toward college expenses. Under the president’s proposed plan, 529 accounts would become taxable investments. The earnings portion of the withdrawal will incur income taxes even when the money is spent on college.

The principal portion, which is the amount you originally put in, will not be taxed since it is made up of after-tax money.

Existing 529 plans will not be affected
It’s important to note that if the plan is approved, these changes will only affect new 529 plan contributions.

Any 529 plans you have right now will still grow tax-free, and you will not pay taxes on the earnings when they are withdrawn to pay for college.

No change to your state tax benefit
In addition to federal tax benefits, many states also offer state tax breaks for residents, including tax credits and deductions. The President’s plan does not affect your plan’s state tax benefits.

If you disagree with the proposal, you’re not alone
529 industry experts, including the College Savings Plan Network, the College Savings Foundation, Savingforcollege.com founder Joseph Hurley as well as the spokesperson for the Chairman of the U.S. Ways & Means have all been quoted as opposed to the idea.

What you can do:

Help families just like yours continue to effectively save for college with tax-advantaged 529 plans! Visit No529tax.org and join in the Twitter discussion using #No529Tax to find out how you can take action against this proposal today! You can also help by signing a petition on Whitehouse.gov to keep 529 plan tax benefits.

Let your opinion be heard!