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02-4: Aloha 529
Thursday, May 2nd 2002
I've never been to Hawaii, but I hear duty calling. The Hawaii TuitionEDGE College Savings Program, managed by Delaware Investments, was launched this week, and I feel obligated to extend my hearty congratulations. In person, of course. It will take at least 10 days in Hawaii for me to do it right, as I will have to visit many of its beaches, rain forests, and volcanoes to be sure that no college savings brochures are left lying around the paradise. In fact, I may need some help from my wife. Pack your suitcase, Virginia.
It seems only fitting that Hawaii, the 50th of the United States, now becomes the 50th state to operate a 529 plan. While certainly not as momentous as its admission to statehood over 42 years ago, the Aloha State's completion of the 529 map nonetheless caps a remarkable string of state-sponsored college tuition and savings program launches dating back to the late 1980s. The 529 industry has grown and matured tremendously over these years and now provides benefits to millions of families around the country.
"So," you might wonder, "where do we go from here?"
If I could submit a wish list for the future of 529 plans, here is what it might contain:
- Finalize the tax regulations and the income tax forms to reflect the 2001 tax law changes (please).
- Straighten out the financial aid imbalance. It is ridiculous that the federal aid methodology treats section 529 prepaid tuition programs differently from savings programs. I feel badly for those families that buy prepaid tuition contracts and find out too late that their child's aid package is severely compromised. The federal government should follow the approach of some of the private colleges and treat both types of 529 accounts as "family assets" under a reasonable formula. Then attack the part of the aid system that currently rewards "spenders" and penalizes "savers".
- Kill the "sunset". (Pretty please.) Allow us to make contributions to a 529 plan today with the confidence that qualified withdrawals will remain tax-free after the year 2010. The changes made in the 2001 Economic Growth and Tax Relief Reconciliation Act should be made permanent. Congress should act now, not later.
- Every state should make a standing offer to the other states indicating: "We'll let our residents who invest in your 529 plan receive the same special benefits (e.g. state tax deduction) that they receive in our own 529 plan, PROVIDED YOU RECIPROCATE. This means you extend your state tax benefits (if any) to individuals who invest in our 529 plan." Everyone will benefit when the states cooperate, and this might get the ball rolling.
- No more big changes to the federal tax laws affecting higher education. (I'm really begging now.) Yes, 529 plans and the other education tax incentives are confusing and complicated, but give us a chance to digest them and we will eventually get comfortable in working with these rules.
- Temper any discussion of "nationalizing" the states' college savings programs. We don't need to fix what isn't broken. It's fine that the regulatory agencies (SEC, DASD, MSRB) are looking to protect investors with new rules for firms that sell 529 plans, but let the states stay in control of their own programs.
- Combine the best aspects of prepaid and savings programs. In the University of Alaska 529 plan, I can invest in a balanced fund with a guaranty that it will keep up with tuition if my child attends the University of Alaska. I love that feature. (Chances are rather slim my New York child will choose to attend UA, however). Other states should consider something similar for their savings programs.
- Make the stock market go up again.
- Conclude beyond any doubt that 529 plans are making a positive impact on higher education in this country. Improving the demand, the accessibility, the affordability, and the quality of higher education will provide enormous benefits to our society.
» 05-4: The 529 marshals have arrived - 08/30/05
» Our 5.29th-year anniversary - 06/29/05
» 05-2: 529s and the new Bankruptcy Act - 04/28/05
» 05-1: Reform or Deform? - 02/27/05
» 04-6: Perspectives on the 529 debate - 12/28/04
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