529 Plans Reform

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Cosmo
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529 Plans Reform

Post by Cosmo »

If there is any truth to this, it would not be a good thing.

http://www.forbes.com/sites/ryanellis/2 ... -savers/2/
The Obama plan aims to turn back the clock, once again taxing earnings growth in 529 plans as ordinary income.
Comments? Time to switch back to taxable?

Cosmo
livesoft
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Re: 529 Plans Reform

Post by livesoft »

Talked about it in this other thread even though it is about a vapor-tax-statute, so probably the thread should be deleted or locked:
viewtopic.php?f=2&t=156097
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Tanelorn
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Re: 529 Plans Reform

Post by Tanelorn »

Time to wait on any 529 contributions for this year for sure.

Luckily for people who invested in 529s thinking the government might keep their promises, I think his speech tonight and its proposals are just talking points for 2016 rather than a serious effort to pass them. When there was a Democratic Congress two years ago, all this could have been passed if that was really the goal.
livesoft
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Re: 529 Plans Reform

Post by livesoft »

Since the thread will get locked anyways, I will voice my opinion that Obama is just laying the groundwork to make the other party take a stand against raising taxes for the wealthy and make themselves look bad. Will any of these ideas get into legislation? That would be very hard to believe considering who controls committees in Congress nowadays, so it is probably not even worth worrying about much less discussing.
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staythecourse
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Re: 529 Plans Reform

Post by staythecourse »

livesoft wrote:Since the thread will get locked anyways, I will voice my opinion that Obama is just laying the groundwork to make the other party take a stand against raising taxes for the wealthy and make themselves look bad. Will any of these ideas get into legislation? That would be very hard to believe considering who controls committees in Congress nowadays, so it is probably not even worth worrying about much less discussing.
Love getting a comment in before threads get locked. I agree with the above. Funny how he thinks the middle class will like having a college savings account benefit ripped away from them. I thought he wanted middle class on his side. The rich have more then enough money to send their kids to any college they want despite any changes in taxation. You figure it is the middle class to be hurt by changing this tax code.

Gotta love politics.

Good luck.

(p.s. I am more interested to see the t.v. viewership numbers for this State of the Union. My guess will be an all time low or near the bottom)
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Cosmo
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Re: 529 Plans Reform

Post by Cosmo »

Mods, if you feel this thread should be locked, please do so. I did not want this to turn political. I am just trying to figure out what this means for me and others in the future. If our earnings will once again be taxed at our own tax rates, well that really changes things going forward and this option no longer looks very favorable. What next? Taxable accounts? I-Bonds? This whole threat has me a bit stressed out as it is presently a very large investment vehicle.

Cosmo.
Last edited by Cosmo on Tue Jan 20, 2015 12:07 pm, edited 1 time in total.
livesoft
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Re: 529 Plans Reform

Post by livesoft »

As already discussed, the middle class should not be using 529 plans since they are not wealthy enough to contribute the max to their retirement plans first. Indeed, doing away with 529 plans would probably be beneficial to the middle class because college costs would drop and their retirement plans would get more funds.
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southerndoc
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Re: 529 Plans Reform

Post by southerndoc »

Ugh. Just contributed $2,000 to my daughter's 529.

What's next? Taxing Roths?
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ERMD
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Re: 529 Plans Reform

Post by ERMD »

staythecourse wrote: Love getting a comment in before threads get locked. I agree with the above. Funny how he thinks the middle class will like having a college savings account benefit ripped away from them.
i believe it's been mentioned on several recent threads that 529 plans are optimized for the upper class, since middle class families may get more bang for their buck maximizing their 401k/Roth plans (and few of them have the funds to get past that point.)
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Bracket
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Re: 529 Plans Reform

Post by Bracket »

My comment is that yes this would make saving for college in a taxable account preferable to a 529. Why use a vehicle that is more expensive, has fewer options, and converts cap gains into regular income? The 529 becomes a substandard non-deductible IRA. No thanks.

Also don't see this happening at all. At least until 2016.
Grt2bOutdoors
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Re: 529 Plans Reform

Post by Grt2bOutdoors »

livesoft wrote:As already discussed, the middle class should not be using 529 plans since they are not wealthy enough to contribute the max to their retirement plans first. Indeed, doing away with 529 plans would probably be beneficial to the middle class because college costs would drop and their retirement plans would get more funds.
That will not work simply because the educational lobbyists will be out in force to protect their non-taxed revenue stream. Can you imagine all the laid off administrators protesting in DC? What are you the administrator of? Response: I had a cool job overseeing the shuffling of the grounds crew who struggled to keep up against crabgrass and making the begonias outside the presidents office look pretty for unsuspecting prospective sheep and their parents. :twisted: Also, the investment management industry will be lobbying hard against this as well, after all who's going to pay for their Grey Poupon? :P Of course if it does come to pass, I'll be able to retire since I won't need to shell out the projected $400K for a 4 year undergrad degree at the local state run university.
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Bracket
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Re: 529 Plans Reform

Post by Bracket »

My question is what do the big 529 firms think about this? How big is the 529 industry? Don't these people have lobbyists?


(Yes I like my 529 and wish they would just leave it alone thank you very much. Stop changing the rules.)
Grt2bOutdoors
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Re: 529 Plans Reform

Post by Grt2bOutdoors »

southerndoc wrote:Ugh. Just contributed $2,000 to my daughter's 529.

What's next? Taxing Roths?
No, he's going to tax your offspring's inheritance instead - called spreading the wealth around.
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Grt2bOutdoors
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Re: 529 Plans Reform

Post by Grt2bOutdoors »

Bracket wrote:My question is what do the big 529 firms think about this? How big is the 529 industry? Don't these people have lobbyists?


(Yes I like my 529 and wish they would just leave it alone thank you very much. Stop changing the rules.)
It's huge - just ask the ICI in DC.
Last edited by Grt2bOutdoors on Tue Jan 20, 2015 12:17 pm, edited 1 time in total.
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Rupert
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Re: 529 Plans Reform

Post by Rupert »

I think it's completely premature to speculate, much less worry, about this proposal right now. It's not law. It may never become law. And even if the law changes, they might grandfather funds already in 529s. As for what to do while the idea is being tossed around Washington, I think I'll put my college savings in IBonds this year and wait until the dust settles before plugging more money into my 529s. If enough of us do that, maybe the mutual fund industry will start putting pressure on Congress to kill the thing.
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Cosmo
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Re: 529 Plans Reform

Post by Cosmo »

livesoft wrote:As already discussed, the middle class should not be using 529 plans since they are not wealthy enough to contribute the max to their retirement plans first. Indeed, doing away with 529 plans would probably be beneficial to the middle class because college costs would drop and their retirement plans would get more funds.
Interesting take, Livesoft. Thanks. Probably doesn't help me, though. Even though I don't consider myself upper class.

Cosmo
Grt2bOutdoors
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Re: 529 Plans Reform

Post by Grt2bOutdoors »

Cosmo wrote:
livesoft wrote:As already discussed, the middle class should not be using 529 plans since they are not wealthy enough to contribute the max to their retirement plans first. Indeed, doing away with 529 plans would probably be beneficial to the middle class because college costs would drop and their retirement plans would get more funds.
Interesting take, Livesoft. Thanks. Probably doesn't help me, though. Even though I don't consider myself upper class.

Cosmo
Don't you know, it's not what you think, it's what THEY think that matters. Anyone who's breathing and earns income is a fruit tree just waiting to be harvested. :greedy
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ERMD
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Re: 529 Plans Reform

Post by ERMD »

Grt2bOutdoors wrote: Don't you know, it's not what you think, it's what THEY think that matters. Anyone who's breathing and earns income is a fruit tree just waiting to be harvested. :greedy
Grt2bOutdoors wrote:No, he's going to tax your offspring's inheritance instead - called spreading the wealth around.
are you taking advantage of being in before the lock to say as many incendiary things as possible? :happy
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Rupert
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Re: 529 Plans Reform

Post by Rupert »

You know, some rich childless person will occasionally start a thread on here about how to use 529s as a tax shelter. Perhaps someone high in the administration is reading . . .
Grt2bOutdoors
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Re: 529 Plans Reform

Post by Grt2bOutdoors »

ERMD wrote:
Grt2bOutdoors wrote: Don't you know, it's not what you think, it's what THEY think that matters. Anyone who's breathing and earns income is a fruit tree just waiting to be harvested. :greedy
Grt2bOutdoors wrote:No, he's going to tax your offspring's inheritance instead - called spreading the wealth around.
are you taking advantage of being in before the lock to say as many incendiary things as possible? :happy
Not intended to be inflammatory or incendiary, merely confirming my opinion that even though I am not wealthy by any means I am considered to be a source of funds for one to tap for reasons that I am not in agreement with. Therefore what I think doesn't matter. It's entirely personal and actionable by me - I will now refrain from contributing any further to plans that were specially designed specific purpose vehicles as it appear the rules can be changed at any time.
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leonidas
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Re: 529 Plans Reform

Post by leonidas »

Maybe it is time to think about using ROTH's for education expenses.
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danwhite77
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Re: 529 Plans Reform

Post by danwhite77 »

This thread should be merged with

viewtopic.php?f=2&t=156097
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livesoft
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Re: 529 Plans Reform

Post by livesoft »

leonidas wrote:Maybe it is time to think about using ROTH's for education expenses.
Funding a Roth was probably always the better option even with state income tax breaks unless kids were very close to attending college.
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RunningRad
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Re: 529 Plans Reform

Post by RunningRad »

My read on the proposal, which is purely speculative at this point, is that future contributions, from some point in time defined in the future, would be subject to ordinary income tax, but past contributions would continue to grow tax-free. I would be shocked if past contributions, made under a set of assumptions, would be subject retroactively to new assumptions.

I am glad that my 13 and 16 your old children have most of their contributions to the 529s banked, and if the law were to be changed, I am very sympathetic to the parents of future college students. Ironically, the burden of rising tuitions is probably paid, in large part, by the folks who can afford to contribute to 529 plans. Perhaps by limiting the ability of middle and upper middle class parents to pay for skyrocketing college costs, we might be able to bend the cost curve. I am just looking for a silver lining here. :)
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Re: 529 Plans Reform

Post by LadyGeek »

This thread has run its course and is locked (proposed legislation). As a reminder, see: Forum Policy
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