Congress passes 529 tax permanency

After passing the House of Representatives six days earlier, the Senate voted 93-5 on August 3 in favor of the Pension Protection Act of 2006 (H.R. 4), sending the measure to President Bush for his expected signature.

Buried in the 900 pages of provisions dealing mostly with pensions and other retirement plan issues, Section 1304 of the Pension Act makes permanent the 2001 EGTRRA changes to Section 529, including the federal tax exclusion for qualified withdrawals from a 529 plan.

The long-sought after 529 tax permanency provision removes the uncertainty surrounding the tax treatment of 529 plans after the year 2010 and provides college savers using 529 plans with unique tax benefits going forward. The Pension Act does not help Coverdell education savings accounts, which will still face a 2010 sunset of tax benefits contained in EGTRRA.

The Pension Act also provides the IRS with authority to develop regulations to prevent abuse of 529 plans. This is meant to address Treasury Department concerns that 529 plans can be manipulated for non-college purposes.

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