States propose new federal benefits for 529s

At their meeting in New York City in July 2007, the National Association of State Treasurers and the College Savings Plans Network approved three resolutions that the organizations will use as the basis for their efforts with Congress to improve 529 plans through the federal legislative process.

The first proposal is to have legislation enacted that would add contributions to 529 plans to the list of deferrals or contributions that qualify for the Saver's Credit. The Saver's Credit is a specified percentage of up to $2,000 in eligible contributions for taxpayers below certain income thresholds.

The second proposal is to include computers, internet access, and educational software on the list of qualified higher education expenses for 529 plan tax purposes. These expenses for K-12 students are currently qualified for purposes of the Coverdell education savings account.

The third proposal would provide a deduction to employers, and a tax-free benefit to employees, of up to $5,250 per year in contributions made by the employer to the employee's 529 account or Coverdell education savings account. The rules would generally follow the current section 127 treatment for employer-provided education assistance.

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